Paying off Credit Card Debt: Snowballing v. Credit Crunching
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Paying off Credit Card Debt: Snowballing vs. Credit Crunching

With consumer debt at unprecedented levels in the United States, major credit card issuers reporting more late and delinquent accounts than they've seen in years and the prices of necessities creeping upward, many consumers are looking for a solution.

Different resources recommend different ways of attacking the debt monster. Here, we'll outline two popular methods of eliminating credit card debt and help you figure out which is likely to work for you.

The First Step to Being Debt-Free

Before you decide which method to use, you need to make a serious commitment to eliminating your debt. That means making debt elimination your top priority. Most people benefit from creating a budget to purge the unnecessary spending from their lives so there's enough money to put toward credit card (or other) bills.

Keep in mind, too, that your rent or mortgage payments should take priority each month. If your home goes into foreclosure or you get evicted, your debt problems will only be compounded.


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Contact Your Creditors

Once you're committed to paying off debt, why not see if you can save yourself some time and money? Call each of your creditors to address two issues before beginning your debt snowball or credit crunch:

  • Ask for lower interest rates. At best, you'll end up saving money. At worst, you're right where you started.
  • Request that any amount you pay beyond your minimum payment be put toward your balance, not your next payment. Some card issuers do this automatically, but it's best to check if you're not sure.

Now get ready to be debt-free!

  1. The Debt Snowball

Good if you: need regular encouragement to stay motivated; would rather pay fewer bills each month; want to start seeing results quickly.

  • List your debts. Gather all your debts (except your mortgage) and organize them from smallest amount due to largest amount due. If you have two debts of similar value, put the one with a higher interest rate first.
  • Commit to pay: Reinforce your decision to pay the minimum amount on each debt each month.
  • Calculate your leftovers: Here's where the budget comes in. After making all minimum payments, determine how much leftover money you have each month to put toward your debts.
  • Pay the bills: Each month, pay the minimum on every bill except your smallest. For that one, pay the minimum + the "leftover amount" you calculated.
  • Let the ball roll: When your smallest debt is paid off, dedicate your money to the next-smallest debt. While paying the minimum on all other debts, you'll be paying on your second-smallest debt the minimum + whatever you paid for the smallest debt (minimum + "leftover amount").

This method is known as a "snowball" because the process speeds up as you pay off debts, much like a snowball rolling down a hill. Snowballing can be psychologically rewarding because starting with the smallest debt allows you to see success quickly, which can be a strong motivator to keep at it.

  1. The Credit Crunch

Good if you: are so pumped up about eliminating debt you don't need any more encouragement; want to pay the least possible amount of money; don't mind waiting for results.

  • List your debts. Collect all your debts (except your mortgage) and arrange them from the one with the highest interest rate to the one with the lowest interest rate. If you have two debts with the same interest rate, put the one with a greater balance first.
  • Commit to pay. You must be dedicated to this plan for it to be effective.
  • Calculate your leftovers:< As with the snowball method, you'll need to determine what you can spare each month after making all your minimum payments.
  • Pay those bills. Each month, you'll pay minimum amounts on all your debts except the one with the highest interest rate, for which you'll pay the minimum + the "leftover amount" you calculated.
  • Crunch your debt: When you've paid off your highest-interest debt, put whatever you were paying for that debt (minimum + "leftover amount") toward your debt with the next-highest interest rate. Keep doing this until you're debt-free.

In many cases, this method ends up being somewhat less expensive than the debt snowball, but it can be more difficult to maintain. Because you won't necessarily start with your smallest bill, you may not see a debt eliminated for several months, which can be frustrating. But if you don't mind juggling several payments each month, this may be the best method for you.

Debt & Credit Counseling

If you aren't sure which method would best suit your debts, consider consulting with a credit counseling agency< for advice on your finances.


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