Pay Off Strategies

There are two methods to pay off your credit card, the snowball method or avalanche method. There are pros and cons to both.

Snowball Method.

1. Make a list off all your credit card debt
2. Add up how much you’ll need to pay to make the minimum monthly payment on all the cards.
3. Determine how much additional money you’d like to apply towards your credit cards.
4. Order your credit cards from the lowest balance to the highest
5. Apply all the additional funds you have set aside for credit card debt to the card with the lowest balance.
6. Once that card is paid off move to the next lowest balance and adding the minimum payment from the card you just paid off to the additional funds to pay off your credit cards.

Example: You have three cards with a minus monthly payments of $100, $200 and $300 for a total monthly obligation of $600. You determine you can apply an additional $75 each month to pay off your cards. Your total payments towards your cards is $600 + $75 = $675.

Let’s assume the card with the $200 monthly payment has the lowest balance. You would apply your “extra” $75 to that card, while making the minimum monthly payments on this and the other cards, until it was paid off.

Once it’s paid off you would then have $275 to apply towards paying off the next card. $200 from the minimum required on the card you just paid off and the “extra $75. You are still making total monthly payments of $675 but now you are able to pay down the other cards faster.

As each card pays off there is more money to pay down the next card faster. It’s a “snowball’ effect.

Pros – Easier to stay motivated as you can measure progress by seeing cards being paid off.

Cons – It may not be the cheapest as you might not be paying off cards with the highest balance first.

Avalanche Method

1. Make a list off all your credit card debt
2. Add up how much you’ll need to pay to make the minimum monthly payment on all the cards.
3. Determine how much additional money you’d like to apply towards your credit cards.
4. Order your credit cards from the lowest balance to the highest
5. Apply all the additional funds you have set aside for credit card debt to the card with the highest rate.
6. Once that card is paid off move to the card with the next highest rate, adding the minimum payment from the card you just paid off to the additional funds to pay off your credit cards.

Pros – You’ll “save” more money by reducing debt on those cards with the highest rate first.

Cons – Progress might be harder to measure as it may take longer to pay off cards with larger balances.

Action Items

1. Reduce the limit – As you pay down your cards, call your credit card company and tell them you want to reduce the amount available on the card.
2. Call the credit card company and tell them you no longer want the card to “revolve.” This means once you pay down the card you can’t put that money back on the card.
3. Close the card – Once you pay off the card, call the company and close it.
4. Opt out of credit card offers – To opt out go to optoutprescreen.com or call 888-567-8698.
5. Reduce the number of cards you have. Consolidate down to a few. It makes tracking all of this easier.
6. Track it – Allows you to see your progress and keep up the motivation to keep going.
7. Remove your credit card information from websites or your browser’s autofill option.
8. Remove all the auto payments hitting your credit cards. If Netflix is debating your credit card change it to a debit card.
9. Leave them at home or give them to someone you trust. They’ll still be available in an emergency but not used for discretionary spending.
10. Throw them out!  

Plan to Pay Off Credit Cards

1. Start a savings account and contribute a certain amount each month
2. Stop using your cards
3. List all of your credit cards on a spreadsheet
4. Choose the snowball or avalanche method
5. Determine how much additional you’ll pay each month, in addition to the minimum monthly payments. 
6. Track it – Track how much debt you pay off each month
7. Close them – Once you pay a card off close it
8. Pre emptive strike – Life happens and there will be months you won’t be able to pay an additional amount or even make the minimum monthly payments. Decide now what you will think about it and how you’ll handle it.