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Getting Out of Debt: Credit card

Updated on March 16, 2016


Snowball Method

The Snowball Method is where one lists their debts from smallest to largest balance owed. If there are two debts that are very close in the amount owed, you should focus on paying the one with the higher interest first.

Once you have the accounts listed from smallest to largest, you need to figure out what you can dedicate to paying off the smallest debt. Say your minimum payment on this debt is $68 (a credit card with a balance of $2,380) and you can only afford to add $100 to it each month. So each month you'll make a payment of $168, until the debt is paid off. It would take you about 15 months to pay it off.

Once that debt is paid off you take the $168 you were putting on the first debt and carry it over to the second debt and add in the minimum payment for the 2nd debt. So say you have a minimum monthly payment of $145 on a $5,000 debt. You'll add $145 & $168 to make a payment of $313 each month until debt #2 is paid off. Which would take about 16 months.

After paying off each debt, you'll just add the previous debts payments to the next debts minimum payment.

This is a long and stressful journey of paying off your debts. Not only that but depending upon the amount of debt you have and what you can put towards your debts, it can get costly to use the Snowball Method.


What method do you feel is best for you?

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Debt Stacking Method

The Debt Stacking Method is very similar to the Debt Snowball Method. The only difference is you start with the highest interest rate account first to the lowest interest rate last.

This is the debt reducing method, that I personally prefer.

My husband and I have over $25,000 in credit card debt from the last few years. We would pay off the majority of our credit cards at tax time and then only make the minimum payments, while still using the card. Only digging ourselves deeper into debt.

So here we are getting out of credit card debt once and for all.

We started with our highest interest rate card in December of 2015. I normally make two payments each month (the minimum payment both times). But now that my husband has a job that allows him to set aside money for paying off our credit cards, we've bee dedicating at least $560 a month towards these debts, plus our minimum payments.

So we have paid $560 in December, $605 in January, and $560 in February. We have less than $300 left to pay off on this card.

Because we'll be receiving our tax returns in the near future, we'll be using the entire amount to dedicate to paying off the debts that we have. Again starting with the highest interest rate cards first.

In March when the 1st card is paid off, we'll dedicate the $605 towards the next credit card payment and add in it's minimum payment. By the time we pay off that card with the extra payments and our tax return we'll roll those payments into the next debt.

With the debt stacking method, since you're paying off the highest interest rate cards first, you're going to pay less interest overall. Thus saving you more money than you would have if you used the Debt Snowball Method.

Paying only the Minimum Payment

If you are only paying the minimum payment it will take you YEARS to have a ZERO balance and you will have paid out a TON of interest. For example, I'll use one of my statements from before I paid off a large portion of my Chase Amazon Card.

My limit was $3,000 at the time. My balance was $2,304.29.
My interest rate was 22.49%. My minimum payment was $65.

If I only paid the minimum payment, it would have taken me 13 YEARS to pay off my credit card debt and it would have cost me a grand total of $5,621.

If I just added $24 to my minimum payment, it would have shortened the length of time by 10 YEARS!!!!

So in 3 years, I would have paid... $3,198, giving me a savings of $2,423!

Only You Can Make the Decision!

When it comes to your debt you are the only that can make the decision on what is best for your financial health/wealth.

For my husband and I, I am the one that handles all the planning and budgeting. Mostly because my husband isn't available to pay bills (he travels a lot). So I take the burden off of him and pay all the bills and budget for what we need to save.

I personally don't like the Debt Snowball method, I prefer the Debt Stacking Method. Why?
Because the Debt Stacking Method starts with your highest interest rate regardless of the amount of the debt. This in the long run will save you THOUSANDS of dollars in interest. Thousands more that you will end up putting into savings or investing!

You have to start somewhere. Just know that it's hard, but it is worth it!


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