Snowball: financial experts named ways to pay off loan debts

The debt load of Russians is growing rapidly. Over a quarter of all borrowers have more than three existing loans, and every twelfth service five loans or more. Over the past two years, the share of borrowers with five loans, according to the Scoring Bureau credit history bureau, has almost doubled. The Central Bank is not happy with this trend. In recent comments, the Bank of Russia directly points out the need to slow down lending growth. But what should someone do who has already taken out loans, but does not have enough money to repay them? How to cope with the debt load for those who have three, five loans around their necks, or even one, but quite large? What are the chances of getting rid of debt bondage?

The average size of a consumer loan has been announced in Russia. Most often, borrowers borrow from banks from 200-500 thousand rubles, and the average bill for a consumer loan in the country is about 700 thousand rubles, experts from the financial marketplace Banki.ru said. At the same time, in addition to consumer loans in Russia, there are other forms of loans, for example, mortgages and car loans, and completely different amounts are circulating there – the bill, as a rule, is no longer tens or hundreds of thousands, but millions of rubles. There is a demand for every type of loan. But what should a person do if he has several loans on hand at once, but does not have enough income to service them?

Anastasia Chumak, co-head of the investor rights protection practice at Intercession, recommends taking the following steps. First, you need to soberly assess your current financial situation.

“Examine your income, expenses and debts. Determine how much you owe each lender, what percentage APR you’re paying on each loan, and what your monthly payment amounts are, says the expert. – If you notice that you are unable to keep up with your debt payments, contact each of your creditors. Explain your situation, say that you are facing financial difficulties and cannot pay your loans on time. Ask to renegotiate the terms of the loan, perhaps lower the interest rate or increase the repayment period.” Banks are also interested in people paying voluntarily and regularly, so I can easily make compromises.

Chumak also advises contacting a credit bureau to find out your current credit history and better assess your chances of getting help. If your credit history turns out to be too negative, you will have to work on fixing it. Otherwise, it may be difficult to obtain additional financial resources.

“Visit an advisor who specializes in debt management and financial planning. Such people can help you develop a budget, a plan for getting rid of debts, and offer various strategies that will help you cope with financial problems, continues MK’s interlocutor. – If the load has become completely unbearable for you, then you have the right to go through bankruptcy proceedings as an individual. This can be done by submitting a corresponding request through the MFC. Bankruptcy does not always mean freedom from debt, but in certain specific cases it will help reduce the debt burden.”

According to Senior Vice President of Fontvielle Investment Company Anastasia Khrustaleva, there are several financial models that can be used when paying off debts. You can try each of them on for your situation and choose the most optimal option. All of them are related to the “winter” theme, causing a certain associative series: the snowball, avalanche and snowdrift method.

“I’ll start with the snowball model. Initially, regardless of the rate, the loan with the smallest amount is paid. That is, the one that is quicker and easier to repay. It is to him that all “random” income in the form of gifts, bonuses, bonuses, and so on is directed. This does not mean that you need to forget about other loan obligations, no, you just don’t need to overpay for them. Once the smallest loan is repaid, the focus is on the next largest,” explains Khrustaleva.

The avalanche method, in turn, involves focusing on the loan with the highest lending rate, and its amount is not important. It is to this that all income is directed, while other obligations are paid at a minimum level. After repaying the first such loan, the target one becomes the one with a slightly lower rate, and so on, descending.

“Suppose you have a car loan for 1.5 million rubles, a consumer loan for 100 thousand and credit card debt for 120 thousand. The rates are 12%, 15% and 21%, respectively. With the snowball strategy, the consumer loan is paid off first, then the card, then the car loan. With the “avalanche” strategy, the focus is on a credit card, then a consumer loan, and finally – the debt for a vehicle,” continues the expert. “From an economic point of view, an “avalanche” is a little more profitable, but from a psychological point of view, I think, a “snowball” is more comfortable – it allows you to quickly reduce the number of loans.”

Speaking in banking terms, the “snowdrift” method is an ordinary refinancing, when numerous obligations are replaced by one large loan with a single rate. However, the extent to which this option is suitable for borrowers, taking into account the current key rate of 16% (and, accordingly, extremely high interest rates on loans from banks), will largely depend on the situation of the individual client and on what loans he currently has. In addition, according to Anastasia Khrustaleva, when refinancing there are associated expenses and additional conditions, so chasing a benefit of 1-2% is often not advisable.

“The main thing to remember when paying off loans is not to take out new ones without getting rid of old ones. The “in debt” lifestyle can lead to the fact that at some point the debt load will increase so much that it will become impossible to cope with it in principle, no matter how you count it. And I also advise that if the debt becomes problematic, do not avoid contact with the bank. It is often easier for a financial institution to make certain concessions, for example, by providing a deferment, than to work with a debtor who is not able to service its obligation,” she concludes.

If, after analyzing your personal budget, it becomes clear that you cannot cope with the financial burden, the main thing to remember in such a situation is that the bank is not your enemy, but your ally, interested in cooperation that is comfortable for both parties, emphasizes the director of the money lending department of one of the Russian banks Alexander Melnikov.

“All financial institutions have developed programs to help clients who have difficulties paying their loans. Therefore, if problems arise, do not hide from banks, but, on the contrary, contact all credit institutions where you have loans. Explain your financial situation and ask them what options there are for reorganizing payments. If your difficulties are temporary, then request a credit holiday. If you want to lower your monthly payments on a permanent basis, then ask for a payment deferment, a lower interest rate, an increase in the loan term while lowering the monthly payment, or other loan restructuring options,” he notes.