There are several tried-and-true methods to paying off your credit card debt. The snowball method instructs you to pay off the credit card with the lowest balance first. The avalanche method directs you to pay off cards with the highest interest rate first. Both work, but they don’t take full advantage of all the options. If you’re willing to take a few extra steps, the “Blizzard” method will help you knock out your credit card debt in the fastest amount of time. It’s the best deal!
The Snowstorm of Debt in America
America has a debt problem. And I’m not talking about our national debt of over $22 trillion (as of March 2019). Let’s talk about YOUR credit card debt. At the end of 2018, credit card debt hit a new record – $870 billion. Particularly troubling is the increase in credit card delinquencies among the older population. Those over age 60 hold about 30 percent of the credit card debt. At at a time when workers should be looking forward to an active retirement, many are struggling to break the chains of debt.
Four of ten active card users carry debt month to month, with an average interest rate of 16.86%. The average credit card debt for those who don’t pay off the balance each month is $9,333. For those with mortgages, student loans, and auto loans, the credit card burden may feel overwhelming.
Snowballs and Avalanches
Let’s talk snow. One of the most popular methods of paying off debt is called the snowball method, made famous by Dave Ramsey. In this method, you get your snowball rolling by paying as much as you can on the card with the smallest balance. Once you’ve paid something off, you move on to the card with the next lowest balance. The method works because it plays on our psychological need for quick victories. But by ignoring the interest rates, you will be paying more than you should. If your lowest balance card has a 10.99% APR and your highest is 20.99%, it’s not a smart move.
In the avalanche method, you sort your credit card debt by the interest rate. Then you send extra payments to the card with the highest interest rate. Once that card is paid off, you send payments to the card with the next highest interest rate – while maintaining minimum monthly payments on all of your other credit cards. Mathematically, the avalanche method makes the most sense. But if you have a $10,000 debt with a 20.99% interest rate, it can feel like you are climbing a mountain and the summit is nowhere in sight.
The snowball versus avalanche camps have built a fort between them. I propose a much smarter way to pay off debt. But yes, it requires taking some extra steps. And your credit score matters. If you really want to tackle credit card debt efficiently, try my Blizzard method.
Introducing the Blizzard Method
There are 5 elements of the Blizzard method.
Your ability to find a good deal with a lower interest rate depends on your credit score. One of the quickest ways to get your credit score is from CreditKarma. If it’s in the ‘Good’ to ‘Excellent’ range, you can proceed to the next stage. But if it’s not, make some quick moves to boost your score.
Make payments on time
Review your credit report and dispute any errors (get a free credit report every 12 months from AnnualCreditReport).
Pay off cards with a low balance and stop using them.
Pay extra toward cards that have a high utilization ratio – balance/credit limit should be less than 30%.
If you have a ‘Good’ to ‘Excellent’ credit score, you have some terrific options. BUT, you have to use credit responsibly. Your mission is to pay off debt, not add debt.
Collect balance transfer offers that you receive in the mail. Especially keep an eye out for 0% balance transfers that are good for 18 or more months. Also, you can peek at offers online by visiting creditcards.com. If you have a less than ‘Good’ credit score, you may not see any bargains – keep boosting your score! Now write down the offers – note the interest rate, length of any introductory period, and the maximum amount you can transfer. If you see something you like and can commit to paying off the balance before interest kicks in, go for it.
Here’s the part that can feel intimidating. If you’re stuck with cards with a high interest rate, call the credit card company. Don’t worry – your negotiation skills, or lack thereof, don’t matter. Studies show that if you are patient and pleasant and have done your research, odds are high you’ll end the phone call with a lower rate. Here’s a script you can use to guide your conversation. Make sure you get the final deal in writing.
Now you have all the cards on the table – your credit score card, the balance transfer card, and the negotiation card. Place them in front of you and make a decision. What’s the best deal you can get? What feels right to you? Make a decision. Commit to it.
The blizzard has arrived and you’ve taken refuge in your house. But once the weather clears, the hard work begins. The time has come to shovel your way out of the house. Let’s turn your shovel into a snowblower by using these strategies:
Use a payoff calculator to come up with a reasonable plan to pay off debt in as short amount of time as possible.
Stop incurring new debt. Use cash and a budget. Bring discipline back into your spending.
Cut expenses and divert to credit card payments.
Bring in more money and apply “found” money – like income tax returns and bonuses – toward credit card payments.
Build in some incentives and rewards. Everyone needs a reward now and then. Set some milestones and reward yourself (nothing too extravagant, please) when you reach them.
Why the Blizzard Method is Tops
The Blizzard method is an empowerment tool. No longer a passive consumer, you’ve taken charge and cut a great deal on lowering the amount you are paying. And you now have a plan. Not only do you save money, you have the research, knowledge, skills, and fortitude to slay debt, once and for all.
Dr. Brenda is a financial coach, educator, researcher, and sociologist. In addition to blogging at The Five Journeys, she writes 30-day challenges at BetterLifeChallenges.com. Her passion is guiding people on their journey to financial freedom through coaching at DrBrendaMoneyCoach and online courses at EarlyExitAcademy.com.
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