Marami ka bang utang at hindi mo na malaman kung ano ang uunahin?

 

Maybe the Debt Snowball Method is for you!

 

Itong method na ito ay pinasikat ni Dave Ramsey, a well-known US-based finance guru. It starts by listing down all the debts you have incurred, from smallest to largest. The goal of this method is for you to be able to pay-off your smallest debts first and make your way up to the largest one. The strength of this technique relies on keeping yourself motivated habang pa-unti-unti mong nakukumpleto ang pagbabayad sa mga utang mo. Unlike other methods, ang Debt Snowball ay hindi naka-alin-sunod sa laki ng interest rate ng mga utang mo.

 

Paano nga ba gamitin ang method na ito para masimulan mo na an iyong journey to a debt-free life?

 

Step 1: List down all your debts in the order of their balances, from smallest to largest.

Step 2: Pay all the minimum payments for all debts EXCEPT for the smallest debt in the list.

Step 3: For the smallest debt in the list pay the minimum PLUS a little more. Keep doing this until you have paid off the smallest debt completely.

Step 4: After that, put the extra money you now have available towards the next smallest debt in your list.

Step 5: Continue allotting your extra money towards the smallest debt until all your debts have been paid off.

 

How To Apply The Debt Snowball Method?

 

I-apply natin ang method na ito sa mas maka-totohanang scenario. Sa Pilipinas, marami ang mga taong nababaon sa utang nila sa mga credit cards, kaya mainam na ito ang gawin nating halimbawa. 

 

1. 5,000PHP Credit Card A (monthly minimum payment: 150PHP)
2. 10,000PHP Credit Card B (monthly minimum payment: 300PHP)
3. 25,000PHP Credit Card C (monthly minimum payment: 750PHP)
4. 50,000PHP Credit Card D (monthly minimum payment: 1,500PHP)

In using the Debt Snowball Method, you will only make minimum payments for all credit cards EXCEPT on Credit Card A, wherein you will pay the minimum PLUS an extra amount of money. Let’s just say you can add an extra 500PHP to the monthly minimum of 150PHP for Credit Card A each month (650PHP in total). It means that you will be able to pay-off Credit Card A completely in approximately 7 to 8 months. After paying off Credit Card A, you can now use that same amount of money to add on to your minimum payment for Credit Card B. Dahil meron ka nang 650PHP every month na pwede mong idagdag sa 300PHP monthly minimum payment, makakapagbayad ka ng 950PHP kada buwan para sa Credit Card B. This will allow you to pay off Credit Card B in approximately 10 to 11 months. You only need to apply the same method to Credit Card C and Credit Card D.

It is called the Debt Snowball Method because it mimics a snowball that keeps growing as it rolls down the hill. Ibig sabihin, lumalaki ang pera na pwede mong i-allot sa iyong mga nakalistang utang. By focusing on and targeting your smallest debt first, you are essentially “freeing up” money that you can apply to the next smallest debt in line. This will also slowly chip away from the main outstanding balance by paying more than the minimum per month. 

I-apply naman natin ang technique na ito sa natitirang utang sa Credit Card C at Credit Card D.

After you have finished paying off the first two credit cards, meron ka nang 950PHP na pwedeng idagdag sa minimum payment na 750PHP para sa Credit Card C (for a total of 1,700PHP per month). You can finish paying off Credit Card C in approximately 14 to 15 months. After which, you will have 1,700PHP freed up para maidagdag sa minimum payment na 1,500PHP para sa Credit Card D (for a total of 3,200PHP per month). You can then finish paying off Credit Card D in approximately 16 months.

 

How About The Interest Rates Or Finance Charges?

 

In our example, we used credit cards that incur finance charges whenever you pay the minimum monthly payment only. And yes, it does add up over time. Kaya critical sa Debt Snowball Method ang mapabilis at mapaaga ang pagbabayad ng mga utang, from smallest to largest. Kung mas malaki ang maidadagdag mong extra money right from the get-go (sa pinaka-unang maliit na utang sa listahan mo), mas mabilis mo din matatapos ang pagbabayad.

 

Mainam na tandaan na ang method na ito ay hindi naka-focsu sa kung aling utang ang may pinaka-malaking interest rate. Kaya nga isa sa mga foundation nito ay ang continuous na pagbabayad ng monthly minimum payment lamang sa mas malalaking utang sa iyong listahan habang naka-focus ka sa pinakamaliit na utang.

 

A friendly reminder that the Debt Snowball Method does not mean that you don’t pay anything towards your larger/largest debts at all. As a matter of fact, it revolves around you making the minimum payments for the larger debts as you make your way through your list and snowballing the money that gets freed up.

 

Why Is Snownballing An Efficient Way To Be Debt-Free

 

It is essentially molding your behavior to keep you motivated throughout the entire process of paying off your debts.

1. It pushes you to organize and pay your debts in order.
   1. Kapag naka-organize at planado ang pagbabayad mo ng iyong mga utang, mas mapapadali din ang paggawa mo ng monthly budget. More or less, alam mo na kung magkano ang kailangan mong ilaan para sa iyong mga utang kada buwan with the added bonus of paying off your debts in the most efficient and practical way.
   2. Nakasalalay din sa pagbabayad ng monthly minimum payment at ang pagbabayad nito sa tamang oras para hindi mag-incur ng late payment fees.

 

1. It encourages you to throw in extra money into your “snowball”.
   1. It molds your behavior in such a way that you will prioritize paying off your debt by allotting more of your extra money towards it. Ibig sabihin, mas magkakaroon ka ng self-discipline when it comes to how, when, and where you spend your extra money. Imbis na gamitin mong pang-shopping, mas mainam na ipangbayad mo na lang sa utang mo.

 

1. It inspires you to stay focused on your goal.
   1. As your debt decreases, it motivates you to keep moving forward. Ang kagandahan ng method na ito ay nakikita mong lumiliit ang halaga ng utang mo over a shorter period of time hangang sa matapos mo na isa-isa ang mga ito. Again, it all boils down to how this method influences your behavior towards your finances.

 

Yes, It’s Easy—If You Work Hard!

 

Just like everything else, it takes hard work and dedication to make this method an effective way to get rid of your debt. You are required to budget your money well, keep tabs on your minimum monthly payments and due dates, and a lot of sacrifice. Baka nga isipin mo na walang pinagkaiba yung panahon na ilalaan mo sa paggamit ng Debt Snowball Method kumpara sa nakasanayang pagbabayag lang ng minimum. The difference is that in the time you have spent just paying the minimum amounts to all your debts, you could have paid off one or two—if not all—of those debts slowly but surely. Isipin mo na lang na by the time you reach your last and largest debt, you will have a snowball big enough to shatter it.

 

Just to reiterate what was stated—the key is changing your mindset and behavior. Unahin mo ang kailangan unahin.

 

Seeing yourself pay off one debt at a time will give you the motivation and the boost to keep moving forward. Be a snowball now and power through paying off your debts!