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Useful Bits and Pieces

Introduction

Snowballing your credit cards means to pay all of your available spare cash on one card until it is paid off, then move on to the next card.  All other cards are paid at their minimum rate until it is their turn to be snowballed.

Snowballing is easier to follow and understand if you use a "Snowball Calculator", any of the programs will enable you to calculate the best order to pay off your cards, but the snowball calculator runs in Microsoft Excell and many people do not have access to this software. If you do have Microsoft Excell you can read about snowballing debts and obtain calculators on the following sites

• What's The Cost?
• Excel spreadsheets
• Get Rich Slowly. "In Praise of the Debt Snowball"
• About: "How the Debt Snowball Helps Pay Off Debt Fast"
• Mr Peanut's Debt Snowball Calculator

Or you can download an Excel Spreadsheet here:

• SUPER Snowball Calculator V 3.3 (334 KB)
• AUTO Snowball Calculator V 3.5 (10 accounts) (98 KB)

These programs once opened look something like this:

They can appear quite daunting, but do not be put off, some include instructions in the spreadsheet whilst others have the instructions on the website.  Once you have set the program up I am sure you will find it an asset for decision making with regards to 'where to start'.

The following information is an attempt to clarify how to use the snowballing system to repay debts, in particular credit card debts, and to make the system work for you whether you have Microsoft Excell or not.

How Much Can You Repay?

Snowballing credit card debts is only really feasable if you have sufficient money available each month to pay all the credit card minimum payments, plus an amount to reduce the outstanding balance, in practical terms I would suggest that your total commitment is no less than 2½% of the total debt, and if at all posible, considerably more.

There are several debt analysis tools available on the web, if you have not analysed your debts yet now is as good a time as any to start, I suggest you use the analysis tool available from National Debt Line which I have tested and found to be very helpful.  It will calculate the money you have available to pay your creditors after you have filled in:

• Your income;
• Your outgoings;
• Your priority debts;
• Your secondary creditors.

Much of the information you have gathered for the analysis process will now be of use in the next stage of snowballing.

Which Card Do You Pay First?

The card that you pay first is the one that will add most to your debt if ignored, that is the one that makes the highest interest charges each month, if you have store cards, or credit cards with exceptionally high interest charges, you may benefit from transferring these onto a credit card that charges a lower interest, if this is possible.

Once the highest interest card is paid off you will need to plan which card to pay off next, so you will need a system and the system starts by drawing up a list that shows:

1. The name of the card;
2. The balance on the card;
3. The current "teaser" promotional rate, if any;
4. The number of months left on that teaser rate;
5. The rate that the card will revert to after the promotional period;
6. The current minimum payment.

To allow you to do this the following format is suggested:

The current minimum payment will remain the same over the life of the plan, though in reality it will go down as the card is paid off.  This little discrepancy should not affect the results very much, especially since you are throwing more than the minimum at the card that is going down the fastest.

If we work out the minimum required payment using my suggested formula above we find:

• Minimum Payments Total = £70.91+£54.50+£37.65=£163.06
• 2½% of £8183 = £204.58
• Giving an initial debt repayment of £41.52

It goes without saying that at this rate it is likely to take some time, five years to be precise, before your debt will be repaid.

How Long Will It Take?

This of course is dependant on the interest being charged and how much cash you have available to throw at the debt, "the more you pay, the sooner you are solvent", but do remember that you have to live whilst repaying your debts, and what seems reasonable today is often seen as purgatory tomorrow.

The table below shows how long it would take, for various amounts, to pay off all the above outstanding debts if the interest rates remained as they are.

The above table is a clear indicator of the hazards of accumulating debts, what you end up repaying is far in excess of what you originally borrowed, and the time it takes to repay can be the stumbling block for many, even for those who at the outset had the best of intentions.  I do not want you thinking that there is a simple solution to debt, the simple part unfortunately is spending the money in the first place, repaying the money is a completely different story.

Improving Your Chances

There are a number of ways that you can improve your chances of success, whilst at the same time reducing the total amount you will repay:

1. Set up standing orders or direct debits, for "set" not reducing amounts, to ALL the cards on your debt list:
2. • Ensures all minimum payments are made on time;
   • Negates the possibility of a £25 late payment fee;
   
3. Transfer all your outstanding debts to 0% cards.  This has definate advantages but some pitfalls:
4. • You will have to keep applying for 0% cards;
   • You will have to keep excellent records of start and end dates;
   • You will have to keep re-transferring to new cards.
   
5. Transfer all outstanding debts to cheaper interest cards, there are some cards that now offer low interest (8.9 or 9.9%) for the lifetime of the debt:
6. • Find low interest cards at MSN Money, select "Credit Cards" from site menu;
   • You may need more than one card, dependant on the credit limit allowed and the size of the debt;
   • See the table at the bottom of the page for possible savings.
   
7. Make additional payments to reduce the debt as and when available:
8. • Overtime and bonus payments;
   • Tax rebates;
   • Lottery, Bingo, Premium Bonds, or Football pool wins;
   • Every little bit helps as it reduces interest charges and the time taken to become solvent.

The table below shows how long it would take, for various amounts, to pay off all the above outstanding debts if the debts where transferred to credit cards charging 9.9% interest.