Debt Snowball

My wife wants us to pay off the credit cards in order of their interest rates. A very sensible idea but the problem is, that is exactly what we have been doing and we are not getting anywhere. In fact we are going backwards. As soon as we get any sort of available funds available on a card they get spent. We need to do something different. Cutting up the cards was a good first step because it stops us from spending any further.

After reading about Debt Snowballs at Get Rich Slowly I knew this was the solution for us. The card with the highest rate is one with an $8000 balance. If we pay that off at a rate of $100 per fortnight it will take us years. Instead we have decided to knock off some of the smaller balances first. We will start with the card with a $1000 limit. It has been cut up so we can't spend any more on it. We are going to pay the minimum balance on everything else and put the remainder off this balance. Once it is finished we will close down the account. Then we will attack the next smallest balance. Once again we will pay only the minimum balance on everything else but this time we will have the money that we had been paying off the $1000 card as well so it is getting an extra payment per month. We will finish off the balance, close the account then go to the next smallest balance but now with 3 payments per month.

I like this plan for two reasons. First of all we will see results. With a bit of discipline it won't take us long to knock off that first $1000 card and then we can close it. It is only a small step in the big picture but it will be a big psychological win for us. Secondly the plan involves reducing not just our amount of consumer credit but also our available credit. We had been treating our available credit as a target for spending and until we can truly break that habit there is nothing for it but to reduce our credit limits.

This is very exciting and I can't wait to make the call to close that first card!