Paying Off Credit Cards With The Credit Card Snowball

by The Happy Rock on April 8, 2009

This is a guest post by Trisha Wagner.  Trisha is a freelance writer for DepositAccounts.com, where you can compare rates from dozens of banks in one place. Trisha writes regularly on the topics of personal finance and saving money.

cutting-the-credit-card-snowballCredit card debt is among the hardest debt to pay off once you have accumulated it. Not only are the interest rates pretty high, but most people use their cards regularly, which means they add to the balance just as fast (or faster!) than they make payments on them. If you make a payment late or charge more than your available credit, you get slammed with additional charges on top of the interest.

Paying off high interest credit cards should be your first priority for finally taking control over your financial situation. Here is a method you can use to pay off your credit cards in a way that gives you results early, and helps you build momentum and motivation to pay them all off!

Step One: Figure out how much you owe. Sit down with each of your credit card statements and write down the total amount owed, the current interest rate, and your minimum payment. Also figure out your living expenses (rent/mortgage, other loans and debts, utilities, etc) to figure out how much money you have available to contribute to your credit card payments on a monthly basis.

Step Two: Call each of your credit card companies, one by one. You’re going to say something similar to the following, in an effort to get your interest rates lowered:

“I have been offered a 5% balance transfer offer from another credit card company. They are willing to transfer the balance from this 18% interest credit card to theirs for a 5% interest rate for the life of the balance. I’ve gotten great service from you, but I am going to have to switch my balance to help me save money if you can’t lower my interest rate.”

The response at first will probably be something they read off their customer service response manuals, and basically tell you that your rate is the best they can offer. Thank them for their time and let them know you will be transferring your balance since they are unable to help you. Many customer service representatives will put you on hold to speak to their managers at this stage, and will come back with a lower interest rate to keep you as a cardholder. Sometimes, they don’t help you but they can’t raise the interest rate just for trying to get a lower one, so what do you have to lose?!

Step Three: Once you have called each of your credit cards (and hopefully lowered a few interest rates), re-arrange the order of your credit cards on your list of accounts so that the smallest balance is first, followed by each of the others ordered by balance owed.

Step Four: Pay all of the cards on your list the minimum amount due, except for the credit card in the first position. You will send this account as much as you possibly can every month until it is paid off. So if the credit card with the smallest balance owed is $300 and you can afford to send them $100 a month, it will take you 3 months to pay it off, during which time all of your other accounts receive the minimum payment.

Step Five: As soon as you pay off the account in the first position, take the amount you were sending to that creditor and add it to the minimum payment you had been sending to the credit card second on your list. So if you were paying that card $20 each month, you’ll know send $120 a month until it’s paid off, while paying each of your other creditors the minimum amount due.

You’ll simply continue this process, getting larger payments to apply to each of the credit cards on your list as you pay off the one before it.

Many people argue that you should pay off accounts with the highest interest first, but for most of us, we need to get results to stay motivated. If your highest interest account also happens to be your largest balance, you could be paying for years on that account before you see it get paid off. When you can pay a card off rather quickly and make a larger payment to the next one in line right away, you start to see the benefits of your hard work much sooner, and are more likely to continue your debt repayment process.

{ 4 comments… read them below or add one }

Rose April 9, 2009 at 9:47 am

This is a cool way of getting rid of your credit card debts–but you have to grit your teeth to stay en-route. Yeah, I feel envious of other people being able to bring home the latest gadget through card use but I was burnt badly by debts before so I’m always forced to swallow my envy. Now–I’m glad ‘I save first before I buy.’ It’s better than ‘buy now and pay later–with high interest rates.’ :)


ed April 9, 2009 at 1:31 pm

Unless I actually have an offer in my hand, I think Step two is dishonest.

You may say…”that is the way the game is played”. And I agree with that, however it is still lying to tell them that you are going to transfer a balance to a card that doesn’t exist.


The Happy Rock April 9, 2009 at 2:00 pm

@Ed – I agree. Doing some research to find some offers on the net doesn’t take but a few minutes, but you can also say something like ‘there are plenty of companies that are willing to transfer my balance at rates closer to 5%’. You often don’t need to mention any specific offers to be forceful.

Also, if the service rep is giving you a real hard time, just call back and get a different service rep.


garrett @ debt eagle June 28, 2010 at 5:23 pm

Calling and asking for a better interest rate is definitely good advice. Ive read recently that about 50% of people who call up their credit card company and just ask for a lower rate, get it the 1st time they call.
Also if they won’t lower your rate when you call, call back the next day and you might have better luck talking to another representative.
Its a quick phone call and is one of the easiest things to help debt.


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