Like most folks in my generation, I've accumulated about $15K in credit card debt. Most of it was big, one time expenditures (like moving) coupled with down turns in employment and illnesses. I've been working the debt snowball for over a year now and have cut the amount on one credit card by 2/3rds. But the interest isn't doing us any favors...
I've been keeping my eyes peeled for cards offering a 0% interest rate on balance transfers—trying to find the lowest general APR and the longest balance transfer term. After a couple of failed attempts, I finally qualified for a card with enough of a limit that I could transfer my two higher interest rate cards over. And the balance transfer is 0% interest for 21 months—which, even with the balance transfer fee of 5%, ends up lowering our monthly payments by about $40.
That lets us do one of two things: either we can use that $40 to pay our regular bills (which we'll probably do while my income ebbs), or we can apply that money to the one remaining credit card (that we're already paying extra on).
Here is the initial break down of debt (before the 0% interest card):
Total monthly payments: $527 ($40 less than before)
Total interest paid: $1,470 ($627 less than before)
Total debt paid: $16,665
Total number of months to pay off debt: 33 (2 years, 9 months)
So even though it's taking longer to pay off (by 2 months), I'm paying $40 less per month—which gives me a little more wiggle room during those months when I have less money coming in—and I've cut the amount of interest we'll have paid by about $600 from the Debt Snowball method alone.
And, of course, on months when I can pay more than the 'snowball' amount, I will, just to chip away at the debt a little more & pay it off even sooner, but this also gives me the leeway to pay less than the $250/month on Card #1. I've basically given myself an $80 buffer. If there are extremely tight months I can move that $80 elsewhere, and I'll still end up paying less than I would have with the other methods.
I know this is a lot of math and if you're like most people, you look at all of this and your eyes glaze over. If that's the case, you're a champ for even attempting to read any of this.
This is why I looked for the longest term available, because it let me move more of my debt over.
This also gives a set time frame in which to pay off that debt: 12 / 15 / 18 / 21 months. If you can't pay it all off within that time frame, you get slammed with more interest, so be strategic about it and don't bite off more than you can chew.
In my case, I moved 1/3rd of my debt to a 0% card because that's what I could comfortably afford to pay off in the time frame allotted. That also enables me to reduce my monthly payments while paying more than the minimum balance on the card that's still charging me interest.
I may not pay the debt down as fast as I would if I were using the Debt Snowball method and throwing everything I have at the debt. But I end up paying less overall (even if it takes me two months longer).
Also, be mindful of the transfer fees. You'll have to read the fine print to figure it out, but a lot of online applications will do the math for you before you hit the submit button when transferring debt. When I applied, most of the transfer fees were 5% (I think there was one that was 3.5%).
Lastly, pay attention to the interest rates after the introductory period. They'll be different depending on your credit score, but watch out for the higher rates or the cards with fees.
Here's the debt snowball calculator I use. It gives you the comparison to regular payments, the interest accrued, and the monthly breakdown of payments: FinancialMentor Debt Snowball Calculator
I usually check NerdWallet or CompareCards to find 0% interest apr / low interest rate credit card comparisons. You can also just do a Google search for "Best Credit Cards" or "0% Interest Credit Cards" and you'll get a slew of comparison sites.
I've been keeping my eyes peeled for cards offering a 0% interest rate on balance transfers—trying to find the lowest general APR and the longest balance transfer term. After a couple of failed attempts, I finally qualified for a card with enough of a limit that I could transfer my two higher interest rate cards over. And the balance transfer is 0% interest for 21 months—which, even with the balance transfer fee of 5%, ends up lowering our monthly payments by about $40.
That lets us do one of two things: either we can use that $40 to pay our regular bills (which we'll probably do while my income ebbs), or we can apply that money to the one remaining credit card (that we're already paying extra on).
Here is the initial break down of debt (before the 0% interest card):
- Card 1: $9,800 +/- (@ 8.74%)—paying $170/month
- Card 2: $3,590 (@ 14.74%)—paying $85/month
- Card 3: $1,805 (@15.74%)—paying $312/month (minimum +$225)
Total monthly payments: $567
Total credit card debt: $15,195
Step Down Method (aka just paying the minimum until it's all paid)
Pros: Once you pay off a card, that monthly payment amount goes back into your budget.
Cons: Takes longer to pay off & you end up paying more in interest.
If I was to just continue making regular payments on these 3 cards, this is how long it would take to pay off & how much interest we'd end up paying:
- Card 1—paid off in 76 months with calculated interest of $2,955
- Card 2—paid off in 60 months with calculated interest of $1,503
- Card 3—paid off in 8 months with calculated interest of $88
Total monthly payments: $567 (for 8 months) / $255 (for 52 months) / $170 (for 16 months)
Total interest paid: $4,546
Total debt paid: $19,741
Total number of months to pay off debt: 76 (6 years, 4 months)
This sort of 'step-down' method of paying only the minimums (or whatever extra you can throw at them whenever you can), may not save you money—but once something is paid off, it frees up that monthly payment amount to go towards whatever else you need—which is particularly helpful if you need it to go toward things like medical bills or child care.
It doesn't get rid of your debt any faster, but it does free up money on a monthly level. I wouldn't recommend it, because you're paying a lot in interest. That said, as long as you're making your minimum monthly payments on time, you're building up your credit score—so it's not all bad. And you are paying down your debt, just very very slowly.
Debt Snowball Method:
Pros: You pay off your debt faster, accruing less in interest payments
Cons: You have to be able to maintain the same payment amount each month, which is harder for people who don't have a steady income.
- Card 1: paying $170/month (minimum payment)
- Card 2: paying $85/month (minimum payment)
- Card 3: paying $312/month (minimum payment + $225)
Card 3 would be paid off in 8 months. Once Card 3 is paid off, the monthly payment rolls over and is added to Card 2 (minimum payment +$312 = $396).
Card 2 would be paid off in 16 months. And once Card 2 is paid off, the monthly payment rolls over and is added to Card 1 (minimum payment +$396 = $567).
Card 1 would be paid off in 31 months.
Total monthly payments: $567
Total interest paid: $2,097
Total debt paid: $17,292
Total number of months to pay off debt: 31 (2 years, 7 months)
This is all assuming we could maintain $567/month in payments & didn't charge anything on any of the cards in that time. Truthfully, it never goes that smoothly.
I've been working on this for a year, and honestly, we're pretty much in the same boat that we were in a year ago. It's just that two of our cards have about $2,500 less debt and one of our cards has about $3,000 more debt on it. Which is why I'm trying something new.
0% Interest + Debt Snowball
Pros: It gives you anywhere from 12-21 months to park your debt interest free & possibly lower your monthly payments (depending on the debt and the term).
Cons: Not everyone can qualify for a 0% interest card & it dings your credit report.
I've now transferred Cards 2 & 3 over to the 0% interest rate credit card:
- Card 1: $9,800 (@ 8.74%)—paying $250/month
- Card 2: $5,744 (with transfer fees, @ 0% for 21 months)—paying $277/month
Card 2 will be paid off in 21 months, then the monthly payment will be rolled over and added to Card 1.
Card 1 will be paid off in 33 months, but I'll be able to pay more than the minimum during the first 21 months (while the other card was being paid off), which helps me chip away at the total and still gives me a little bit of a financial buffer.
Total monthly payments: $527 ($40 less than before)
Total interest paid: $1,470 ($627 less than before)
Total debt paid: $16,665
Total number of months to pay off debt: 33 (2 years, 9 months)
So even though it's taking longer to pay off (by 2 months), I'm paying $40 less per month—which gives me a little more wiggle room during those months when I have less money coming in—and I've cut the amount of interest we'll have paid by about $600 from the Debt Snowball method alone.
And, of course, on months when I can pay more than the 'snowball' amount, I will, just to chip away at the debt a little more & pay it off even sooner, but this also gives me the leeway to pay less than the $250/month on Card #1. I've basically given myself an $80 buffer. If there are extremely tight months I can move that $80 elsewhere, and I'll still end up paying less than I would have with the other methods.
Paying Off Fast vs. Paying Off Smart
I know this is a lot of math and if you're like most people, you look at all of this and your eyes glaze over. If that's the case, you're a champ for even attempting to read any of this.
The basic gist is this, if you can, get a 0% interest rate credit card and transfer as much of your debt as you can easily manage to pay off within the introductory period.
This is why I looked for the longest term available, because it let me move more of my debt over.
This also gives a set time frame in which to pay off that debt: 12 / 15 / 18 / 21 months. If you can't pay it all off within that time frame, you get slammed with more interest, so be strategic about it and don't bite off more than you can chew.
In my case, I moved 1/3rd of my debt to a 0% card because that's what I could comfortably afford to pay off in the time frame allotted. That also enables me to reduce my monthly payments while paying more than the minimum balance on the card that's still charging me interest.
I may not pay the debt down as fast as I would if I were using the Debt Snowball method and throwing everything I have at the debt. But I end up paying less overall (even if it takes me two months longer).
Also, be mindful of the transfer fees. You'll have to read the fine print to figure it out, but a lot of online applications will do the math for you before you hit the submit button when transferring debt. When I applied, most of the transfer fees were 5% (I think there was one that was 3.5%).
Lastly, pay attention to the interest rates after the introductory period. They'll be different depending on your credit score, but watch out for the higher rates or the cards with fees.
Resources:
Here's the debt snowball calculator I use. It gives you the comparison to regular payments, the interest accrued, and the monthly breakdown of payments: FinancialMentor Debt Snowball Calculator
I usually check NerdWallet or CompareCards to find 0% interest apr / low interest rate credit card comparisons. You can also just do a Google search for "Best Credit Cards" or "0% Interest Credit Cards" and you'll get a slew of comparison sites.
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