Credit Card Snowball Effect and How to beat it
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?
There is a plan that will help you pay down then pay off all your credit cards! Think about it, you taking control of your financial future. This simple plan is like a credit card snowball effect.
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.
Snowballing your credit card balance to achieve debt elimination is not difficult. You take a little each month and add to what you are already paying. You take the balance down faster and therefore the interest you pay, which in turn grows the amount of your next payment that goes toward principle, this is the credit card snowball effect.
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.
Gather all your credit card statements.
Put them in order according to interest rate percentage.
Pay as much extra as you can each month on the one with the largest interest rate.
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.
No two credit cards will have the exact same interest rate. Conventional wisdom says that it only makes sense to pay off highest interest rates. However, look at the example numbers below.
For the sake of argument, lets say that you have two cards with different interest rates. Let us further assume that the interest rates are ten and twenty percent respectively. Choosing which one to pay will depend on the balance on each. If your 10% card is caring a large balance then your monthly interest accrual will be higher than the larger interest rate.
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.
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.
Pay the minimum on others until the card with the highest interest accrual is at zero.
Rinse, lather and repeat for all the cards in your wallet.
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.
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?
There is a plan that will help you pay down then pay off all your credit cards! Think about it, you taking control of your financial future. This simple plan is like a credit card snowball effect.
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.
Snowballing your credit card balance to achieve debt elimination is not difficult. You take a little each month and add to what you are already paying. You take the balance down faster and therefore the interest you pay, which in turn grows the amount of your next payment that goes toward principle, this is the credit card snowball effect.
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.
Gather all your credit card statements.
Put them in order according to interest rate percentage.
Pay as much extra as you can each month on the one with the largest interest rate.
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.
No two credit cards will have the exact same interest rate. Conventional wisdom says that it only makes sense to pay off highest interest rates. However, look at the example numbers below.
For the sake of argument, lets say that you have two cards with different interest rates. Let us further assume that the interest rates are ten and twenty percent respectively. Choosing which one to pay will depend on the balance on each. If your 10% card is caring a large balance then your monthly interest accrual will be higher than the larger interest rate.
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.
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.
Pay the minimum on others until the card with the highest interest accrual is at zero.
Rinse, lather and repeat for all the cards in your wallet.
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 your credit, he has mutilple years of 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
posted by Debt Consolidation Loan at
9:14 AM
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