Choose One Of These Two Payments Methods To Get Out Of Credit Card Debt Much Faster

Shutterstock


In October 2015, I finally decided to get a control of my credit situation. I always knew it was slightly out of control but I never crunched the numbers, looked at the statements or calculated the amount of time it would take to pay everything off.

Man, did that day suck.

I’m not alone. Most of the country is in debt, especially people between 21-40, and we’re all carrying around the same amount (or pretty damn close). According to a study by NerdWallet, most households with credit card debt owed an average of $15,355. Mine was slightly over $16K but that’s pretty damn close to the average. For once in my life it felt good to be average!

Back to my situation. My first move was to move one credit card balance to a new credit card with zero interest for 18 months. I was paying like $90 in interest every month. The second move was to pick one of the three balances and pay it off. Up to that point, I was paying towards all three but I’d do it differently each time. One month I’d put a larger sum on one card and pay slightly above minimum on the others. The next month, I’d do that but focus on a different card.

Now, it’s good to pay off debt. I get points for that. But I was doing it all wrong. I did a little internet investigating and came across two proven methods to reduce debt. The snowball method and the avalanche method. I immediately thought “I should go skiing!” and booked a $1000 trip on one of my credit cards.

Kidding.

Here are the differences between the snowball and avalanche methods. I’ll explain both, reveal my choice, and then the ball is in your court to find an option that works for your budget.

What’s the snowball method of credit card payments?

Picture a snowball. Don’t picture it coming at your face, envision it on the ground. It starts small and after continuous rolls it gets bigger and bigger AND NOW picture it coming at your face.

The snowball method was made famous by financial author Dave Ramsey. First, list all your debts from the smallest balance to the largest balance — regardless of the interest rate — and start with the smallest balance. Each month, pay only the minimum on all the other balances and focus the rest of your money on paying off that first balance. Once that’s gone, move onto the next balance and so on. The benefit to the snowball method is there’s a feeling of accomplishment in seeing each debt disappear.

So what’s the avalanche method of credit card payments?

Avalanches are scary as hell. Also scary is the biggest of your credit card balance. That number would make most people dump in their shorts. With the avalanche method, a person works on paying off their highest balance first. No matter how large. It’s the same method as snowball except all the small balances get minimum payments and the massive debt gets the big chunks of cash.

So which method did I choose?

It was easy for me to decide between the snowball and avalanche methods of paying off my debt. I’m an instant gratification person. I need to see those small balances go away. If I kept hammering at the largest balance, sure it would go down, but I’d eventually get frustrated and go “this sucks!” and book that ski trip. I need to feel like I’m moving toward a goal without the payoff being JUST the goal.

Now, only you know which method will work best in your situation but I’m suggesting choose snowball or avalanche immediately and start shoveling out the accumulation of debt.

Also, cancel that ski trip.

[via Wise Bread]

Chris Illuminati avatar
Chris Illuminati is a 5-time published author and recovering a**hole who writes about running, parenting, and professional wrestling.