Today I am going to share a debt pay down plan with those of you that feel like your credit cards and other financial obligations are out of control. If you’re like me, when you have credit cards in your wallet; it seems like nice meals, spur-of-the-moment family vacations, and all kinds of other unnecessary things find their way into your daily life!
Before you realize it, your credit cards balances can (and will) creep up, and up, and up!! You may end up with thousands of dollars spread over many credit cards before you realize what you’ve done. You only realize it when you are at the point you can barely make the minimum payments.
Okay, sounds like it’s time to panic, right? No more splurging, what am I going to eat if I have to eat at home, no more free checks??? Don’t panic yet, you’re not alone! It’s time to stop using the credit cards and work on getting those balances paid back down! You’ll have to probably make some sacrifices for a while, but you’ll be surprised how quickly you can pay down the debt if you put your mind to it.
Most people that have any common sense will start putting all of their extra money on their highest rate credit cards first. It seems to make sense, but when you do that, it also seems to take FOREVER to make any progress in paying things off. One of the biggest challenges of paying down your cards is staying persistent and sticking to the plan. This is where at least 80% of people fail and fall back into the same old habits.
Here’s an example of what happens. Let’s say you have a card with a $15k balance, and a 13% interest rate, and your other cards all have $3k balances or less, each with interest rates ranging from 1.9% up to 11%. Some overly simple math makes it seem like the best thing you can do is get the highest interest, highest balance card paid off first. The problem with this is staying motivated. You probably don’t have much extra money in the first place, so you’re only paying a moderate amount above the minimum payment. It may take a year or more to pay down the $15k card if you choose that one as your first target. You can see why it’s easy to lose motivation and slip back into your old habits.
On to the Debt Snowball debt pay down method!! The Debt Snowball method seems to defy the math. Using this method, you pay your card with the lowest balance off first, even if it’s a low interest rate card. You should be able to pay the balances off on the small cards quickly. This does three VERY important things for you.
1. When you eliminate these smaller payments first, you free up additional money each month that you can contribute to the next card.
2. After only a short amount of time, you have eliminated some of your payments. This saves you time, and possibly checks, money orders, and postage. It reduces the chance for a missed bill resulting in a late fee or higher interest rate. It also reduces the stress associated with having a large number of bills to pay every month.
3. And last, there is a psychological factor involved as well. When the pile of bills starts to get smaller, you gain motivation to pay the rest of the balances down even faster.
In the end, you have to consider the human factors of motivation and sticking to the plan. Even if you are making progress paying down your largest, highest balance card first, it won’t feel like you’re getting anywhere. Paying down the cards will seem impossible. If you’re struggling to get out of debt, consider the Debt Snowball method!! This article was written specific to credit cards, however; it can just as easily include personal loans, auto loans, or any other obligation.
Please share your thoughts, and post your comments about this below. Have a great day!