Paying off multiple credit cards is no small task, and can be rather daunting, for most people. The “debt snowball” is one method to tackle repayment that focuses on eliminating the smallest credit card balances first and as quickly as possible. Here’s how it works:
Attack the smallest credit card debt by paying its entire balance or as much as you can over the minimum. At the same time, make the minimum payments on your other credit cards.
If you can only make the minimum payment on all your credit cards, then this strategy isn’t possible. Thus, before you start a debt snowball, take a look at your budget to determine if you have the extra cash to make it work.
Once the smallest credit card debt is gone, apply that payment (and any extra cash) onto the next smallest credit card balance.
Could the Debt Snowball Work for You?
The debt snowball works because it’s all about changing behavior. This model is best for someone who needs extra encouragement in sticking with their debt repayment plan. And, to help them get motivated while seeing their debt paid off card by card. Aside from helping pay down debt, here are other advantages of the Debt Snowball technique:
The satisfaction when you pay off a card can provide the momentum to stick with the plan
The psychological boost as you see your debt eliminated card by card
As you remove payments on one card, you’ll have more money to put towards the next card payment, thus creating a “snowball effect”
Because the debt snowball has you focusing on credit card balances with the smallest balances first, it can help you pay a card in full as fast as possible.
It’s important to stick with this plan for it to yield results. By staying focused on the goal, you will be a better manager of your debt now and in the future.
Visit our partner, Greenpath Financial Wellness to get free credit and debt counseling and more advice on developing a plan for a financially healthy life.
Resources:
DebtRoundup.com
Forbes.com
