The Problem

Perpetual credit card debt is an affliction that haunts consumers around the world. While the theory behind credit cards sounds simple—buy things now and pay later—many families are often led into financial ruin because they are unable to manage their debt properly.

For some, it may be better to never even own a credit card at all. Paying for everything with cash seems to chase all debt worries away. However, if you are already drowning under your credit card debt, you need a way to systematically attack the debt. Since “money problems” are the most common things for couples to fight over, eliminating your debt may save your sanity as well your money.

The Solution—Debt Snowball Method

While some people may be able to pay off their debt without a specific plan, the majority of us need to take a systematic approach to eliminating our debt. One of the most effective ways is the Debt Snowball method propagated by Dave Ramsey, a popular syndicated personal finance author and radio host based in the United States. The list below is a step-by-step guide on how to systematically pay off your credit card debt the Dave Ramsey way:

1. Assemble a list of all of your debts, arranged from smallest to largest
2. Continue to pay the minimum payments on all debts except for the smallest debt. For this one, apply all the money you can find to tackling this small debt. Pay as much as you can per month to get rid of this nagging bill.
3. Once you have paid off the smallest debt and won your first battle, take the money you were applying to the smallest debt and use it to attack the next largest debt, which will now be your smallest.
4. Again, continue to pay as much as you can on the new smallest debt, while paying minimum payments on the others. Each time you pay off one bill, you will be able to apply more and more to the next debt. This is where the debt snowball method gets its name— the amount of money that you apply to each debt grows and grows like rolling snowball picking up more snow.
5. Continue the debt snowball until you pay off all of your debts. Then, switch the snowball focus from paying off your debt to investing. By the end of this step, you should have your debts paid off (except for maybe your house) and be investing every month.

Another, very similar approach is to pay off your credit card debts according to the interest rates. However, while this may save a little money in the long run, it is often more difficult to get started when the highest interest rate debt is a very large one. Many people feel like they are not achieving anything and decide to quit. By implementing the debt snowball, you can see fast results and get the psychological motivation to continue!

Quick Tip

One way to achieve results even more quickly is to engage in debt negotiation. By working with your credit card company, you may be able to pay off only a percentage of the total debt you owe. Read here how to engage in Do-It-Yourself Debt Negotiation.

The Catch

Of course, going through all these steps won’t help you in the long term if you don’t change your spending habits. The key to becoming and staying debt free is to understand the risks involved with credit cards, and how to use them wisely. After you eliminate your debt, be sure to understand how you got into debt, and how you can stay out by altering your current spending patterns.

Photo by Andreas Rueda

Related posts:

1. Is Credit Card Debt Consolidation the Right Move?
2. The Pros and Cons of Consolidating Your Credit Card Debt
3. How to Make Your Credit Card Debt History
4. Help Yourself: Debt Management Strategies
5. How to Fix Bad Credit