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​Paying Off Credit Card Debt: Snowball vs Avalanche

Paying Off Credit Card Debt: Snowball vs Avalanche

An emergency comes along or you treat yourself to a new television for working hard all year. But you don’t have cash, so you put everything on a credit card. Your brakes need repair, so you charge that too, and with the holidays, you decide to buy your wife a special present. That’s added to your credit card, too.

Even going out to eat once a month and charging it doesn’t seem that bad – initially.

Without even realizing it, you’re stuck with thousands of dollars in credit card debt, and you have nothing to show for it. Looming credit card payments tack on interest every month, and if you’re paying just the minimum, you’re looking at 15 – 20 years of payments.

Paying Off Debt the Right Way

First and foremost, ditch the minimum payment if you can. Paying just $10 more will drop your repayment period drastically. Those that have the finances to pay off debt (even just $10 helps) will find that there are two main strategies for paying off credit card debt: snowball and avalanche.

Snowball Debt Method

If you grew up in an area where it snows, you know that a small snowball can be rolled into snow to make that snowball bigger and bigger. This is the same method that is used to pay off your debt with the snowball method.

This method of payment is easy:

  • 1.Focus all of your extra money on the credit card with the lowest balance.
  • 2.When one card is paid off, add the money you’ve stopped paying on the credit card to your next credit card.

It sounds tricky, but it isn’t. The idea is that once credit card 1 is paid off, you’ll roll all of your payments into credit card 2 plus your minimum payment that you were already paying. For example:

  • Credit Card 1: $100 payments made.
  • Credit Card 2: $20 minimum payment.

Once credit card 1 is paid off, you’ll be paying $120 on credit card 2 until that card is also paid off. The benefit of the snowball method is that you’ll see results faster, helping you stay motivated.

Avalanche Debt Method

The avalanche method targets your credit cards with the highest interest rates first. These are the cards with 19% APR where minimum payment don’t make a dent in the balance at all in some cases.

This is the cheapest way to get out of debt because:

  • You’re reducing the amount of interest accrued on your debts.
  • You’re reducing the total time to pay back debt because of less accrued debt.

With this method, you simply pay off the credit card with the highest interest rate first. Once you’ve wiped out your balance, move on to the credit card with the next highest interest rate.

The only issue with the avalanche method is that it takes time to see results. If you have thousands of dollars of debt on one card, you might be making payments for years before the card is paid off. While slow-going, you’ll ultimately save more money in the process using the avalanche method.