A "debt snowball" is a system that increases its momentum over time. That means that your results might seem small in the beginning, but you will take bigger and bigger chunks out of your debt as time goes on. It is a very effective way to eliminate credit card debt, but, as with any tool, you must learn to use it correctly to achieve maximum benefit. Here are three tips that are guaranteed to get your debt snowball rolling faster.
Tip #1) Point Your Snowball in the Right Direction
Many people struggling under the burden of heavy credit card debt use a debt snowball method. Unfortunately, many of these folks were given faulty information when they learned of this approach. They were told to focus on paying off the card with the lowest balance first, then to move on to the nest lowest balance card, and so on. This arrangement of a debt snowball could leave you in debt for months or years longer than necessary, and it could cost you thousands of dollars in interest.
The proper way to arrange your debt snowball is to pay off the card with the highest APR - the Annual Percentage Rate, or interest rate - first. Going after the low balance cards can be tempting; it can gratify you quicker, because it takes less time to pay off the first card. That gratification is fleeting, however, because the interest is the real killer. It will take you much longer to pay off all your cards, especially if your highest balance card also carries the highest APR. How important is it to you to become debt free? Would you trade a small, short-term victory for your long-term financial freedom? Think big, stay focused, and do it right.
Tackle the high APR's first.
Tip #2) Negotiate a Better Deal.
Your debt does not exist in a vacuum. Things can change, and you can be the author of that change. Call your credit card companies and ask them to lower your APR. It is just that easy - kind of. First, you must make sure that your account is in good standing. That means you have not gone over your limit, and you have make your payments on time, for at least the last three months. Some credit card companies may require six months in good standing before they will deal, but, rest assured, they will treat their best customers better than they will treat others. After they lower your APR - and if your account is in good shape, they will - you may need to rearrange your debt snowball, as per Tip #1.
Tip #3) Use Balance Transfers - With Caution!
Balance transfers can be a boon to those who are committed to eliminating their as quickly as possible. Ironically, they are often a financial nightmare for just those same people. When used prudently, balance transfers provide debt-ridden individuals a way to pay down balances much more rapidly. Used unwisely, balance transfer fees add up to more debt, and the time limit on the offer expires, exposing the debtor to those pesky, inflated interest rates.
It is important to remember that a balance transfer, from the credit card company's perspective, is a business deal. They will make you an enticing offer, but there is a price. The offer will be low or no interest for three, six, or twelve months, and the price will likely come in the form of a Balance Transfer Fee of up to three percent of the amount transferred. That is still better than the ten to twenty percent interest you would normally pay on the amount over the course of a year.
What you must never do if you carry significant debt is to apply for new credit solely based on a balance transfer offer. You should try to transfer balances from higher rate cards to low rate cards that you already own. Call your credit card company to see if they can make you an offer. If you get a good offer from a card that normally carries a high rate, be absolutely sure you can pay off the amount transferred within the time limit of the deal. Otherwise, you will end up losing money in interest.
The most important thing is to commit yourself to your future financial freedom and to get started. Focus on the high interest cards first, so that you pay less in interest and get out of debt quicker. Never be afraid to call your credit card companies to ask if they can provide help, as in reducing your Annual Percentage Rate. Remember that a balance transfer is like fire - it can be incredibly beneficial or immeasurably harmful, depending on how wisely you put it to use.
