Debt Snowball Method: How to Pay Your Credit Card Debt Fast
Posted June 9th, 2010 and last modified December 28th, 2011A proper plan of attack needs to be put in place in order to deal with the debt successfully, and get all those credit card balances paid off sooner rather than later. One such plan that has proved successful is called the “Snowball strategy.”
With household debt rising, people are finding it hard to cover even just the minimum payments of their credit card debt. Interest rates are adding to the debt, and continued spending is causing the debt to increase rather than decrease.
Discover an alternative approach to reducing credit card debt. Often the most obvious of plans is not the best one when you are trying to clear your bad credit. Learn how to set that debt snowball rolling by going against accepted wisdom.
Having several debts that include credit card debt is a tough place to be. If your credit score is not so hot then you may not be able to consolidate and you may just be faced with the necessity to pay off your debts however you can. Of course, that should always be the plan, but many people like to look for little escape hatches and ways in which they can delay the fateful day when they must confront their debt and properly make inroads into it.
So, How Do You Go About This?
The accepted wisdom is that you should pay off the credit card debt with the highest interest rate first. Whilst this may seem logical and mathematically correct, you may actually be better off tackling the smallest debt first, thus creating the quickest momentum for your debt snowball.
The problem with the accepted approach is that you are not creating an immediate effect that you can see and get excited about. Your head may be satisfied with the maths, but your heart is not involved because it seems that such a long and arduous process lies ahead. The key is to create sustained behaviour that leads to your credit card debt being reduced.
The moment you see one debt wiped off the slate, you become enthused about getting rid of the next one. Dealing with the smallest credit card debt first – no matter what its interest rate – is a great way to start the debt-reduction snowball rolling.
Do Not Use The Card
The first thing that you must do in order to deal with the debt is to stop using your credit cards. If you keep making purchases with them you will not ever get on top of the debt. Take them out of your purse or wallet and putting them somewhere safe.
If you are disciplined enough to only use your credit card in an emergency then keep it on you , but ensure you only use it for emergencies where you do not have cash on you. Also remember an emergency is car break down that needs a repair, not a late night shopping trip!
Most Expensive Credit Card
The next step in this strategy is to make a list of all your credit card debt. Order them from the highest interest rate through to the lowest interest rate.
Next work out how much money you have put aside for debt payments each month. What you then do is pay the minimum monthly payment on each credit card, except for the one with the highest interest rate. That one we will use all of our monthly debt money allocation to pay off.
Keep doing that each month until the card with the highest interest rate is paid off. Then work through the list moving on to the credit card with the next highest rate of interest. Keep this up until all debts are paid off.
This strategy works as by paying the credit card debt with the highest rate you will reduce the amount of interest added to your debt each month, which in the long run will help you pay everything off faster.
Get a Lower Rate
Some credit card companies (not all) are prepared to lower the interest rate on credit cards for customers who are struggling to pay their balances. Call them up and ask for a lower rate of interest. There are many different credit card companies that offer balance transfer deals, and your lender will want to make sure you keep the debt with them. This strategy won’t always work but it is always worth asking.
Remember there are many great balance transfer offers available, and if you are able to get yourself onto one of these credit card deals it will help you get things paid off even faster.
Credit Card Debt Snowball Plan
The idea is to drop all your repayments down to the minimum payments level, bar one – the smallest debt. This is the debt you then attack with full force. Otherwise, very little gets accomplished because all your efforts are diluted across all the various debts.
First you need to accumulate $1,000 cash as an emergency fund. You may wish to leave this in a high interest savings account or on a Debit Card with a $0 Account keeping fee. Then you begin getting rid of all your debt (except your home loan). You will need to draw up a list of your credit card debts and other debts in order from the smallest to the largest. If two debts have similar balances, then you should certainly go for the higher interest one first.
By paying off the little debts first, you see immediate results and this gives you much-needed incentive to carry on through to the larger debts. This is all to do with psychology. The last thing you want is to feel that there’s no point starting on your debts, or carrying on once you have started.
Get that credit card debt snowball rolling today, and see how quickly it gathers momentum.
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