I have been pondering this question for the last couple of days. I did some research online and I am debating on what exactly is the best way I should snowball my debt.
The majority says to pay off your debts in interest order: paying the credit cards with the highest interest first. Paying the cards with the highest interests first reduces the debts that grow the fastest due to the interest added every month. This way helps you save a lot in interest over the period of the snowball.
Other folks, like Dave Ramsey, suggest arranging your debt by balance and paying off the card with the smallest balance first. I think this is the best way for me to go. My logic is this: Paying off my debt in balance order starting with my smallest balance will free up funds from my minimum payments and allow me to apply more towards my debt each time. Factoring the bonuses and tax refund I will use towards my cc debt will make an even bigger dent.
I checked out the popular Snowball Debt Calculator and tried out both scenarios to get an idea of how much of a difference there is between the two
I currently have 11 credit cards with balances. My total minimum payment is $322 and I have budgeted an extra $205 to apply on top of that.
--> Here are my results when snowballing higher interest first:
If you paid the same amount per month, but changed the order in which you paid your debts so you weren't paying the highest interest rates first, it would cost you an additional $753.00 in interest.
If you paid the same amount per month, but changed the order in which you paid your debts so you weren't paying the highest interest rates first, it would cost you an additional $609.00 in interest.
I can create an excel sheet with formulas similar to that on the Snowball website yet specific to my situation. I may do that this weekend if I have time and compare the two choices then. But for now I am leaning more towards snowballing my debt by balance order. You can't beat the plus of wiping out at least one credit card a month and seeing that zero balance each time.
How do you plan on snowballing your debt? Credit card debt?