Pay Off Debt Fast with the Debt Snowball

Here's a way to set up your debt repayment program so that you pay off your debt fast, and pay much less interest than if you just paid the minimum monthly payment each month. Sometimes called a "debt snowball", it's perfect to get rid of after-Christmas debts, to improve your credit score, and just generally to get out of debt as fast as possible.

There are four simple steps. First, make a chart on a spreadsheet or piece of paper, and list all of your credit card debts from the highest interest rate to the lowest. Include Visa, MasterCard, plus store and gas cards too. For each credit card, list the interest rate, the monthly payment, and the total balance of the card.
If you have a card with a low balance, say, under $300, circle it; you are going to pay that one off first. If you can pay the entire balance in one month, do it. Close this card account! This completes the first step - you are now one credit card balance lighter!

Second, you will make all of your monthly payments on time. However, you are going to kick your payment program into high gear by committing to pay more than the minimum on the first card on the list. So, if your minimum monthly payment for the most expensive card is $100, you are going to add as much a possible in addition to that, let's say $50. Each month, you will pay $150, no matter what your statement says your minimum is.

Third, you will eventually pay off the first card. At this point, you will take the $150 per month you were paying to Card #1 and add it to the monthly payment on Card #2. For example, if you pay $75 per month on Card #2, after Card #1 is paid off you will pay $75 plus $150 for a total of $225 to Card #2. Pay this amount each month until Card #2 is paid off - which will happen in record time as you pay more than your minimum due.

The fourth step is to continue building your "snowball" by adding each paid-off card's payment to the next card on the list. As you pay off card after card, the next card balance will be eaten away even faster than the one before it. Generally, most people who use the debt snowball can pay off all of their credit card balances in as little as three years.