How to Use a Debt Snowball to Pay off Credit Card Balances

By Eliza Daglish on June 15, 2012

The debt snowball is a strategy used by many consumers to pay off their credit card balances as quickly as possible. A debt snowball is best used when you have more than one credit card with a balance.

How the Snowball Works

A debt snowball works by using psychological momentum to quickly repay credit card balances. To start, simply write down all your credit card balances and the minimum payment each month. Next, determine how much you can afford to pay toward your balances each month.

Start using the debt snowball by paying the minimum payment on all balances except for the smallest balance. For example, if you have three credit cards with balances of $5,000, $3,000, and $1,000, you would pay the minimum payments on the $5,000 and $3,000 balance.

The remaining funds should be dedicated entirely to the $1,000 balance. By using a debt snowball, you make progress quickly – paying off a whole credit card in as little as a few months, giving you encouragement to continue repaying your debt.

Snowballing to Larger Payments

As you pay off your smallest balances, you free up more money each month to apply to the second largest credit card debt. This is where the snowball comes into play… each month you pay off more and more principal and less interest as your debt falls with each monthly payment. Also, each time you pay off a card, you have one less minimum monthly payment to make, which gives you more momentum as you work through your largest balances.

The debt snowball is not perfect; however, it is very encouraging. As with any strategy, it does not matter how perfect a strategy is unless you can implement it. The debt snowball is one of the most encouraging strategies because it emphasizes the very quick win of paying off a credit card account.

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