Building on yesterday’s tip…..once you get the momentum going and focus on paying one account off at a time, the next step is to create the snowball effect. When the first account is paid, take the payment from the first account and apply it to the second account. When the second account is paid, take the payment from the second account and apply it to the third account. Keep building until all debt is paid. Let’s take a look at an example:
|Card / Loan||Balance||InterestRate%||Minimum Payment|
|Macy’s||$0||25.74%||$60 (add to Best Buy)|
|Best Buy||$1,500||25.24%||$60+$60 (Macy’s)=$120|
When the Macy’s account is paid off, take the $60 payment that was being made to Macy’s, add it to the Best Buy payment and the new payment to Best Buy is $120 (vs $60). When Best Buy is paid in full add the payment of $120 to the Chase Visa for a total payment of $380.
As each account gets paid and the payment is applied to the next account, the payment grows (like a snowball). The larger the payment, the faster you eliminate costly debt.