Snowballing your credit card debt is a way to pay off your credit card debt that helps you build momentum. Like a real snowball, your monthly debt payments may start of small, but as time goes on and you pay off your debts, your payment will grow and progress will seem to come quicker.
How People Normally Pay Debts
Many people approach debt repayment in a way that’s discouraging and not motivating. One of the worst ways to pay back your debt is to make minimum payments on all your credit cards and loans. Minimum-only payments will keep you in debt for several years. If your debt is large enough, it could take decades to completely repay all your debt at minimum payments.
Another slow way to pay off your debt is to increase your payment on several or all your credit cards. Sure, it’s a good thing that you’ve increased your payment beyond the minimum, but you won’t make a huge amount of progress this way either because all your balances are being paid off slowly.
How a Debt Snowball Works
To see progress in paying off your debt, you have to make a large payment on your debt, if not to all your credit cards, then to one credit card. And that’s the way debt a debt snowball works.
To start a credit card debt snowball, you make a lump-sum payment on one of your debts while making minimum payments on all your other debts. Then, once you’ve completely repaid the first debt, you’ll do the same thing for another debt, combining your previous lump-sum payment with the minimum payment for that debt. Keep up this pattern of paying off debts and increasing your monthly payment until you’ve repaid all your debts.
Which Order to Snowball Your Debts
Personal finance experts disagree on the best order to pay off your credit cards. Financially speaking, paying off your highest interest rate debt first is a better idea because you save money on interest in the long run. But, you’ll get smaller debts out of the way sooner if you pay them off first.
The right order to pay off your debts is the order that’s best for you. You may choose to pay off a creditor who’s threatening to raise your interest rate or a debt that’s close to being charged-off. The goal is to put your debts in a payoff order that you’ll stick to.
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