Eliminate Debt Faster Using the Credit Card Snowball Effect

By Phil Crafton

If you are like millions of other people on the planet, you likely have at least three credit cards with balances of ten to twelve thousand dollars. In addition, you are probably still only paying the minimum payment.

By now, you know that this will never alleviate your credit card pain. Debt elimination probably feels like an unattainable goal. Stop hoping for a miracle there is a plan that will have you debt free in no time!

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.

You know what that is, right? Just like a snowball, you roll up in the backyard, credit cards will build up a balance seemingly in moments. As a consumer, you have two choices, get smashed by the credit card snowball effect or turn it around and make it work for you.

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.

There are many people who will tell you to pay off the card with the highest interest rate first. This is what that plan will look like:

List all your credit cards

Rank them in order of interest rate percentage.

Add extra money each month to the card with the highest rate until it is paid off.

Do this over again for each succeeding credit card until you have eliminated them all.

Sounds like good advice doesn't it? On the surface, this is a great debt elimination exercise and eventually it will work. However there are times and situation where this is not the correct way to reverse the credit card snowball effect.

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.

Conventional wisdom in the above case does not apply to debt elimination. The lower interest rate card in this example will actually increase your debt faster than the higher interest rate card.

A better way of attacking this situation is to turn the credit card snowball effect in your favor:

Make a list of all your credit cards.

Choose the one with the highest interest accrual each month.

Put all the extra money on this cards.

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.

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 a professional at managing credit, he has over four years experience in the finance and credit industry. Find reward credit cards, 0% balance transfers and even credit reports at www.Credit-In-Minutes.com. Copyright 2008 credit-in-minutes.com