Eliminate Debt Faster Using the Credit Card Snowball Effect

Americans have on average three credit cards per household carrying a combined balance of nearly 12,000 thousand dollars and most are just paying the minimum payment due.

As everyone knows that plan will take you, no where on the path to debt elimination. You will simply sit and spin your wheels hoping that you win the lottery so you can pay off these balances. What if there was a better way?

Using what is known as the credit card snowball effect you can pay down then pay off all of your credit cards. Currently you are floating along only doing the minimum, this way you take an active role in your debt elimination.

Snowballs start out small and unassuming by rolling them around they will grow in a hurry! Now apply this concept to paying down your balance, start with a little extra and watch it snowball until the card is clear of any balance!

Credit cards grow so fast due to something called compound interest. To put it simply when you only make the minimum payment you likely are not even covering the interest. Now that interest ends up as part of the balance and next month, you will be assessed interest on the new balance. Sound like a credit card snowball?

Debt elimination becomes more and more difficult when you carry balances on your credit card. The credit card snowball effect in the negative is a compilation of compound interest. Therefore, the idea is to use this same effect to your advantage.

List all your credit cards

Rank them in order of interest rate percentage.

Pay as much extra as you can each month on the one with the largest interest rate.

Rinse, lather then repeat for each credit card in your wallet.

There seems to be nothing wrong with the above example for debt elimination, and sometimes it is that simple. Nevertheless, situations are not all created equally and there will be times that demand a different solution.

All of your credit cards have different balances and interest rates. It would only seem to make sense to pay off the highest interest first. Nevertheless, consider these numbers.

For example, let us say you have three credit cards with interest ranging from 5% to 20%. Now assume that one of the cards has a $5,000 balance at 10% interest, which is fifty dollars per month in interest. The highest interest rate you have, 20% is on a card with a $2,000 balance, equaling forty dollars per month in interest.

The above example just goes to show that higher interest is not always the enemy of your debt elimination. The credit card snowball effect will quickly take your balance to new heights. Particularly if you are only making the minimum, payment required.

To use the credit card snowball effect your plan might look more like this:

Create a list of all your credit cards and their rates.

Choose the one with the highest interest accrual each month.

Add extra payments to this card until the balance is zero.

Pay the minimum on others until the card with the highest interest accrual is at zero.

Repeat this process until all cards are paid off.

Looking at it, this way it is easy to see that this will be the fastest road to debt elimination. It is important to always consider financial issues from many angles. This is doubly true with credit cards.

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