Why the Debt Snowball Method Doesn't Work: How to Pay Off Credit Card Debt FAST
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- Опубліковано 31 лип 2022
- Want to learn how to pay off debt FAST? Don’t pay off debt using the debt snowball…instead, try this game-changing debt payoff plan.
If you’re paying off debt, you may have heard that the snowball method is the way to go…but that isn’t completely true. The Dave Ramsey snowball method may not be the best pay to pay off credit card debt. In this video, I’m showing you how to pay off debt fast without getting discouraged and losing momentum.
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The reason the regular debt snowball works is in a situation where you have 4 cards: $800 balance with a $50 a month minimum. an $1500 with a $75, a $2500 card with a $100 minimum, and a $5000 card with a $150 minimum. You pay off the small one and then you use that extra $50 to pay on the $1500 card that has the $75 min, Then when you pay that off, you use the $50 AND the $75 (as well as ANY extra) to go along WITH your min due on the $ 2500 card. So now you are paying the $100+$50+75 ALL on that one card with $2500 on it. At that rate, you will pay it off MUCH faster. Then when that is paid you then use the $175+ the $150 min to pay off that last card. If you spend all your time on that $5000 card with the highest interest, then you will just keep paying massive interest on all of the other cards. So I disagree here.. you use the snowball method because it works. That final card is getting $310 a month and that will pay that largest loan off crazy fast.
Exactly!
The reason why Dave Ramsey suggests the Snowball method is because it is part of his overall baby steps. Not just an individual tool to win with money. If you are FAITHFULLY doing the Baby Steps, you NEED to do the Snowball method. Remember, your savings is only $1000. Your FIRST goal is to reduce your minimum monthly payments as much and as quickly as humanly possible. When an emergency comes up, you will need to return to minimum monthly payments while you get through it. This will leave you with more available cash to withstand that emergency, because you have have reduced the number of monthly payments you have to pay.
Otherwise, this is a perfectly valid way to pay down your debt.
Perfectly described. Life happens and things break or emergencies occur. A person may need to temporarily default back to paying minimums on everything to get through a hardship. Can't do that if one is just focusing on the largest debt first. But if 3, 4, or 5 smaller debts are paid off, it frees up so much capital.
Fortunately for me my smaller debts are also my higher interest.
I really like your approach…..I think the psychological effect of being able to feel progress is a powerful motivation to keep continuing, so I was glad to see that you included that as a first step. I think a lot of people just need a taste of progress and could then continue successfully to what makes more math sense (paying off the highest interest). I view it as being similar to working out or losing weight….people just need to get over the inertia. People though just need to be honest with themselves and their psyche. People also need to look at the actual numbers….say your highest interest debt is also your largest debt, and would take two years to pay off……I can see where people might lose motivation and where it might make more sense to pay off all the small ones and leave the largest for last.
So you start with snowball for first debt then move to avalanche method for remaining debts, got it.
With this in mind, the Federal tax credit for Solar PV and solar hot water panels is 30%.
The snowball method has TWO advantages: 1. the psychological advantage, which you mention, and 2. the fact that with snowballing your mandatory payments go down as fast as possible. In other words: snowballing is the method which reduces your financial risk as fast as possible. The Dave Ramsey method is focused very much on debt- AND risk-reduction. What your "smart' method is doing is: get a higher profit (ie less interest paid) by running more risk. Your channel would benefit if you called it out like that. It would help viewers to make a better educated decision.
thank you for the video, one thing I'd like to mention is how the words economy and ecology have the same Latin root word, eco, basically translating to home. To me, this shows that to have a healthy home, we need solutions that are both economically AND environmentally intelligent.
Thank you
You're welcome 😊
I'm not worried about the math. I have about 8500 in credit card debt and a crappy credit score because of it. Maxed out low limit cards. I just paid off the smallest one at 29% interest. That was 500 balance. Moving into the next smallest one. Again 27/28% interest. Do what works for you.
Thank you!
You're welcome!
When you add math people don’t stick to it, snowball method is effective because it’s easy to understand and it’s effective ..
How much do you recommend you save before starting paying the debt?
You should save a $1,000 emergency fund to start with. You can learn more about emergency funds here: ua-cam.com/video/KjHN3JQudL4/v-deo.html
Great suggestions, but the jerking of the video, zooming in and out, was nauseating.
Peace
You were $40K in debt? Those were rookie numbers to my ex-wife.
What’s the best way to get rid of a huge IRS debt?
Calling them to negotiate and monthly payments. It’s different other debt
Guess Dave Ramsey got it wrong - thanks girls!!
Hi, I have a balance transfer card ending in a couple months, 5k for transfer and 2400 for purchases.
Then, a card for 3500, on for 2500 and one for 600.
All high interest rates.
Balance card is 150 per month, next is 105, next is 85 and the other only 30.
My real goal is to get rid of monthly payments ASAP.
I can’t decide to focus on one of the 3500 or 2500 cards, or start hitting the purchases portion of that balance transfer card….
Hitting the balance card it’s still gonna be a long time befor I can full rid that payment,,but one of the others I can pry do fairly fast.
However 23.0 interest will start accruing on the transfer card once the zero percent ends in a couple months.
Any thoughts
It’s not a math problem it’s a behavioral problem. Stick with Dave’s method.
No
Not if it is a numbers problem
Dave Ramsey? The Christian?
The continuous zooming in and out of your video is very distracting, and I had to make myself finish watching it. It was like nails on chalk board. Just food for thought for future videos.
I am learning so much from you ladies. I just signed up for your course and there is so much I didn't know. Thank you for all your are teaching me