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| How to Eliminate Credit Card Debt - The Snowball Effect |
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| Written by Philip Crafton |
| Tuesday, 13 January 2009 11:10 |
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Americans have on average three credit cards per household carrying a combined balance of nearly 12,000 thousand dollars and most are just paying the minimum payment due. You are already aware that this is taking you deeper into debt and further from debt elimination. In fact, your balances are likely growing on you seemingly moment by moment. Do not give up there is 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. A wise person once said that those who refuse to learn about compound interest are doomed to pay it. No truer words were ever spoken! Therefore, lets begin to learn and turn the credit card snowball effect in your favor and put you on the right path to debt elimination. First, look at the common practice for paying off credit card debt. This is what conventional wisdom says is the best debt elimination practice: Gather all your credit card statements. Rank them in order of interest rate percentage. Add extra money each month to the card with the highest rate until it is paid off. Repeat this process for all of your cards as you pay them off. Sounds like good advice doesn't it? On the surface, this is a great debt elimination exercise and eventually it will work. However there are times and situation where this is not the correct way to reverse the credit card snowball effect. 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 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. The above example just goes to show that higher interest is not always the enemy of your debt elimination. The credit card snowball effect will quickly take your balance to new heights. Particularly if you are only making the minimum, payment required. A better way of attacking this situation is to turn the credit card snowball effect in your favor: Make a list of all your credit cards. Rank them according to amount of actual interest you pay each month. Add extra payments to this card until the balance is zero. 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. Life often has many paths to the same goal. Credit cards and debt elimination are no different. Always consider things from all angles before embarking on your debt elimination process. About the Author: Philip Crafton is an expert in managing your credit, he has mutilple years of experience in the finance and credit industry. Check out the latest credit offers at www.Credit-In-Minutes.com. Copyright 2008 credit-in-minutes.com Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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