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.
You are already aware that this is taking you deeper into debt and further from debt elimination. In fact, your balances are likely growing on you seemingly moment by moment. Do not give up there is a better way!
Who wouldn't want to achieve debt elimination? No one! Credit cards grow at an exponential rate. What if you could turn this credit card snowball effect to your advantage?
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!
A wise person once said that those who refuse to learn about compound interest are doomed to pay it. No truer words were ever spoken! Therefore, lets begin to learn and turn the credit card snowball effect in your favor and put you on the right path to debt elimination.
First, look at the common practice for paying off credit card debt. This is what conventional wisdom says is the best debt elimination practice:
Write down all your cards.
Choose the one with the highest interest rate
Add extra money each month to the card with the highest rate until it is paid off.
Repeat this process for all of your cards as you pay them off.
At first, the glance this seems like a reasonable plan for debt elimination. However, this is not always the best course of action.
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.
To put this in terms that make sense consider the interest on your different cards and how your balance affects that number. Say, you have a credit card with a $5,000 balance at 10% interest; this means your monthly interest is fifty dollars. On the other hand, say that the other card has a $2000 balance at 20% interest rate. Your monthly interest would be forty dollars. The higher interest rate is actually cheaper per month.
As you can see in the above example this is a time that conventional wisdom does not apply. Fifty dollars a month will soon balloon the balance on that card even though it is the lowest rate in your wallet. Especially if you are making only the minimum payment.
To use the credit card snowball effect your plan might look more like this:
Make a list of all your credit cards.
Rank them according to amount of actual interest you pay each month.
Begin concentrating all the extra money you can toward that credit card.
Keep all other cards at minimum to free up cash to pay off the first card.
Repeat this process until all cards are paid off.
Sometimes a debt elimination plan means looking at things with a new perspective. This way of using the credit card snowball effect will have you free of your debt woes in no time.
You are already aware that this is taking you deeper into debt and further from debt elimination. In fact, your balances are likely growing on you seemingly moment by moment. Do not give up there is a better way!
Who wouldn't want to achieve debt elimination? No one! Credit cards grow at an exponential rate. What if you could turn this credit card snowball effect to your advantage?
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!
A wise person once said that those who refuse to learn about compound interest are doomed to pay it. No truer words were ever spoken! Therefore, lets begin to learn and turn the credit card snowball effect in your favor and put you on the right path to debt elimination.
First, look at the common practice for paying off credit card debt. This is what conventional wisdom says is the best debt elimination practice:
Write down all your cards.
Choose the one with the highest interest rate
Add extra money each month to the card with the highest rate until it is paid off.
Repeat this process for all of your cards as you pay them off.
At first, the glance this seems like a reasonable plan for debt elimination. However, this is not always the best course of action.
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.
To put this in terms that make sense consider the interest on your different cards and how your balance affects that number. Say, you have a credit card with a $5,000 balance at 10% interest; this means your monthly interest is fifty dollars. On the other hand, say that the other card has a $2000 balance at 20% interest rate. Your monthly interest would be forty dollars. The higher interest rate is actually cheaper per month.
As you can see in the above example this is a time that conventional wisdom does not apply. Fifty dollars a month will soon balloon the balance on that card even though it is the lowest rate in your wallet. Especially if you are making only the minimum payment.
To use the credit card snowball effect your plan might look more like this:
Make a list of all your credit cards.
Rank them according to amount of actual interest you pay each month.
Begin concentrating all the extra money you can toward that credit card.
Keep all other cards at minimum to free up cash to pay off the first card.
Repeat this process until all cards are paid off.
Sometimes a debt elimination plan means looking at things with a new perspective. This way of using the credit card snowball effect will have you free of your debt woes in no time.
About the Author:
Philip Crafton is an expert in managing your credit, he has over four years experience in the financial industry. Find reward credit cards, 0% balance transfers and even credit reports at www.Credit-In-Minutes.com. Copyright 2008 credit-in-minutes.com
posted by Credit Counseling at
11:46 AM
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