Reducing your credit card debt is very easily one of the most challenging tasks these days, especially for the ‘not so financial savvy’ individuals among us. This may be attributed to an inability of such individuals to effectively understand the cons of a growing credit card debt. Even worse if these debts are being owed in varying degrees on multiple credit cards. According to industry experts, Americans have over $1 trillion of credit card debt.
In certain geographical regions of the world such as the U.S., financial factors such as your credit score can easily affect your chances in landing financial incentives such as loans, and mortgages.

insurance
Another reason to reduce your credit card debt has to do with an accruing interest on existing credit. In many cases, individuals who struggle to pay their credit card debts manage to pay the least amount payable. i.e. the minimum percentage of the entire credit load allowed by the credit company. The challenge with this is that the interest continues to appreciate, thereby causing the individual in question to pay sometimes twice as much, and for long periods in a bid to clear up all debts.

While it may be hard to believe, this may cause stress, and anxiety in some individuals, and in extreme cases, depression.
What methods are most functional in paying credit card debts? Here are a few functional methods:
1. Avalanche method.
2. Snowball method.

 

How the Avalanche Method Works

There are multiple verified methods by which credit card debt can be effectively reduced. One of such methods is the Avalanche method.
While the avalanche method of reducing card debt may seem like common sense, very few people understand its effectiveness in this regard. With this method, debtors simply focus more on reducing higher interest debts.
Basically, you try to pay off the credit card with the highest interest seeing that you will end up paying more as time goes by.

In more practical terms, if you have three (3) card payments to make, A, B, and, C respectively, you pay the one with the highest interest rate.

A
Balance-$1500
Interest-$150/month
Minimum payment/month – $50
B
Balance – $4000
Interest – $40/month
Minimum payment/month – $10
C
Balance – $3000
Interest – $90
Minimum payment/month – $30

insurance
Based on the information above, which of these A, B, or C should be tackled first?

The natural instincts of most humans would suggest that they pay B first, not realizing that A tends to accrue more interest than B.
Step 1. Identify which of these accrues the most interest per month (A), now pay the minimum allowed for all the other payments, and pay the remaining bulk sum to A, to avoid interests.
Step 2. After you have successfully paid off A, continue with the next highest interest card, and follow the same guidelines until you have paid it all off.

 

How the Snowball Method Works?

The snowball method is another very efficient method of paying off credit card debts. It mostly has to do with our psychology as humans, and the droplets of dopamine which are released by our brain every time we accomplish a task.
The snowball method entails that you pay the debts from the smallest balance first, and then move unto the next smallest until you have to deal with the largest. This system may be likened to the Japanese mantra of Kaizen which refers to small increments to achieve mastery in any endeavor.
Using the parameters provided above,

A
Balance-$1500
Interest-$150/month
Minimum payment/month – $50
B
Balance – $4000
Interest – $40/month
Minimum payment/month – $10
C
Balance – $3000
Interest – $90
Minimum payment/month – $30

insurance
Which of these A, B, or C should be paid first based on the snowball method of paying off credit card debts?

If you said A, then you are correct, since A has the smallest balance, thus it appears to be an achievable goal. Once A is paid, then proceeds the payer to C which has the next smallest balance.
Armed with droplets of dopamine, most individuals would readily snowball their way out of debt, as every paid balance serves as more motivation.
It is important to note that there are no preferred methods among the aforementioned methods namely Snowball, and Avalanche respectively.
While the Snowball method is an effective method to tackle credit card debt, the Avalanche method is a much more practical method since it reduces the amount you tend to pay in the long run (disregarding other factors such as ROI, and payback period, as well as inflation).
Thus, different methods will work for different individuals.

 

Are There Other Strategies You Would Recommend? How Do They Work?

Many other methods of effectively reducing credit card debt exist, thus, individuals may choose strategies based on personal preferences.
One of such credit card debt-reducing methods which I have used on multiple occasions is a mix of the Snowball, and Avalanche methods.
Some industry experts call it the hybrid method.

 

Hybrid Method / SnowAva

In this method of credit card debt reduction, the Snowball and Avalanche techniques are combined to keep the debts from accruing extreme figures in interests, while gaining motivation by completing certain select payments.
Basically, you select the payment with the smallest balance, and the largest interest from your list of credit balances.
By doing this, you have adopted the snowball method in selecting the smallest balance, and the avalanche method in selecting the smallest balance with the largest interest. It is quite an efficient strategy, and works well with younger individuals.
In addition, if you decide to pay off debt on a credit card, you can view the list of organizations on our partner website

 

Snowflaking

Another method of credit card debt reduction is Snowflaking. Snowflaking simply involves the payment of the minimum on all debt balances, while compounding little extra cash from other sources, and adding to the payment of the debt.

Snowflaking is especially useful for individuals who have a tight budget, and maybe experiencing difficulties in meeting their basic needs, and paying their debts. One of the advantages of the Snowflaking method of credit card debt reduction is that it is efficient for individuals who are on a tight budget. Also, it may be the method with the least interference with life activities provided extra debt is not being added on existing debt balances.

This is because some individuals would rather pay the minimum percentage of their debt for longer periods, without having to worry about offsetting any debts, regardless of the accruing interests lurking in the background. And depending on your perspective as a person, it seems like a functional plan, seeing that most people live in debt all through their lives. This way, you may get to live without worries, and pay these minimum percentages as though they were a bill. e.g. light bill.

Once again, it is important to iterate the fact that this method will only lead to an accumulation of debts if you keep accruing more debt while employing this method.

 

Conclusion

Many individuals tend to look for a ‘one size fits all’ solution to credit card debt payments, but in all honesty, the topic of debt does not give room for a one size fits all solution. Hence, it boils down to the behavioral traits, and the psychology of the individual in question.

Dave Ramsey, a financial expert buttress this point ‘The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely.’

It makes sense to try multiple methods, but I’ll give a hint based on my experience. If you are the type of person who thinks life is too short, and intends to make the most of it, but have debt all over, chances are, you are not as disciplined to follow through, hence, I would suggest the snowball method. This is because individuals of this sort get bored easily, and are always looking to spend regardless of existing debt balances.

insurance
The snowball method will help such individuals stay on track thanks to the incentives in dopamine as their list of debts continues to lose a number as time goes by.
Individuals who are often strict with spending, and understand the need to effectively clear out debt may take the Avalanche approach since it is truly the most efficient way in to eliminate credit card debt. This works especially well if such individuals are particular about increasing interest rates, and how much they may end up paying in total.

Finally, those who find themselves in the dilemma of being unable to squeeze out excess cash after minimum debt payments, and expenditure on basic amenities, may opt for Snowflaking, but as a temporary measure.
Also, one of the last measures to repay current debt with large interest charges is to take an additional loan. You should resort to this method if you are firmly convinced that you can repay both loans and not get bogged down in debt. For example, in the Philippines, the best search solution for loans is the Upfinance service, where you can find a convenient list of personal loans with the lowest interest rate. This extreme measure can help out in a difficult situation with a large credit card debt.