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.
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.
Let's take a closer look at a snowball. You start small and soon after rolling over and over they can build massive. Does that sound a little too familiar with your credit? Apply the credit card snowball effect in the positive way and you'll see it works.
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
Choose the one with the highest interest rate
Pay extra on the card with the highest interest percentage.
Repeat this process for all of your cards as you pay them off.
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.
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.
Let's take another look of how to use the credit card snowball effect to your advantage:
Create a list of all your credit cards and their rates.
Rank them according to amount of actual interest you pay each month.
Put all the extra money on this cards.
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. - 16089
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.
Let's take a closer look at a snowball. You start small and soon after rolling over and over they can build massive. Does that sound a little too familiar with your credit? Apply the credit card snowball effect in the positive way and you'll see it works.
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
Choose the one with the highest interest rate
Pay extra on the card with the highest interest percentage.
Repeat this process for all of your cards as you pay them off.
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.
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.
Let's take another look of how to use the credit card snowball effect to your advantage:
Create a list of all your credit cards and their rates.
Rank them according to amount of actual interest you pay each month.
Put all the extra money on this cards.
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. - 16089
About the Author:
Philip Crafton is a professional at managing your credit, he has over four years experience in the financial industry. Apply for 0% interest credit cards and more at www.Credit-In-Minutes.com. Copyright 2008 credit-in-minutes.com
