The Debt Snowball

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The Debt Snowball
How to break up with your credit card bills
by Alacias Enger

Four years ago, I graduated with my master’s degree. My gift to myself? Two maxed-out credit cards, and a whole pile of student loans staring me in the eyes. The student loans seemed inevitable, but the credit card debt? It kind of snuck up on me, although to some degree I knew it was happening because I was leaning on Mr. Visa to pad my budget. The anxiety that came over me as I opened those credit card statements was completely overwhelming. Every time I made that minimum payment, the interest would post, bringing that balance right back up to where it was before. The cycle felt endless, and so did my anxiety. I was looking forward to the future while being haunted by the purchases of the past. I knew that if I wanted the anxiety to go away, I needed to rid myself of my credit card debt.

I had just over $8,000 in credit debt, which is just under the national average, and I felt as though it was smothering me. I had entered into a field that historically didn’t pay very high and there were many things I wanted to do for my financial future. Continuing a spiraling cycle of credit card debt just wasn’t one of them. People living with HIV/AIDS often have finite or restricted incomes, and are looking for ways to either make more money or do more with what is already there. One solution is to eliminate credit card debt, freeing up those funds to serve other purposes.The relationship between consumer and credit card is most certainly a dysfunctional one, and it’s time to break up.

Your first step: Take all of the credit cards out of your wallet. It’s time for a cash diet. You are only to use cash or a debit card to pay for purchases. You’ll need to be tough with yourself. If the money isn’t there, don’t make the purchase. It might hurt for the first month or so while you get used to it, but you’ll thank yourself later.

The next step is to work out a plan to pay off your credit card debt. Eventually, you’ll work on paying off everything else, but credit card debt comes first. There are two very popular strategies for paying off debt. This month I would like to introduce you to one of them: The Debt Snowball.

The Debt Snowball is a popular strategy for paying off debt, and is a favorite among those who consider themselves to be largely driven by logic. The debt snowball will yield the highest savings while in repayment because it focuses on repaying the debt with the highest interest rate first. The debt with the highest interest rate is costing you the most money because it is growing more rapidly. In order to get started, gather your most recent credit card statements.

Look at each statement and jot down the balance, interest rate, and minimum payment. Now, arrange them into a list starting with the highest interest rate at the top, followed by the next highest interest rate, and so forth until you’ve listed them all. The lowest interest rate should be at the bottom. The balance and minimum payment amounts should also be represented on this list.

Now that you’ve completed the organizational part, it’s time to develop your action plan. Continue to pay the minimum payments on all cards every single month. Pay extra on the card with the highest interest rate. Anything remaining in your budget should serve to pay down the balance of the highest rate card. If your highest rate credit card has a minimum payment of $100 and you generally have a $200 cushion in your budget, you should be paying $300 on that card each and every month. During this time, any bonuses, tax returns, or refunds of any kind should be applied to this balance in order to get rid of it as quickly as possible.

Once the first card has been paid off, the amount that was being applied to it monthly is automatically “snowballed” onto the card with the next highest interest rate. Keep repeating this process until all credit card debt has been eliminated.

Remember to be patient with yourself. It took a while to accumulate the debt. It will take some time to get out of it, but you can do this.

Next time, we will discuss The Debt Avalanche, as an alternate method of repaying credit card debt.


Alacias Enger is a performing artist, writer, and educator. She lives with her partner in New York City, and is the founder of blogs “Sense with Cents” and “Travel Cents.” Follow her on Twitter @sense_w_cents. If you have a personal finance question you would like answered in the column, please send an email: [email protected].