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Snowball vs avalanche: What’s the best way to pay off multiple credit cards?

October 31, 2022
min read

Paying off multiple debts isn’t as scary as it sounds. Let’s start thinking about payment strategies so you can figure out what works for you.

Multiple Debts

So, you have multiple credit cards and debt piling up, but you’ve made the decision to start paying it off and move on, that’s great! Let’s review some of the ways people pay off multiple credit cards. Every situation is unique to the person so while these ideas can certainly be helpful, you should make a decision about what works best for you and if you need a little personalized advice, meet with a Cambrian Advisor to get some information on paying off your debt.  

Tips to Help You Get Started

Cut out the Cards

If you can afford to stop using your credit cards, consider paying with cash or debit instead so that you’re not increasing your credit card debt.

Pay Down the Principal

Try to make more than the minimum payment on your cards. The amount that you pay above the minimum helps to pay down the principal amount.

Principal: Is the original amount of the loan or investment. This amount is separate from interest that has been added to the principal amount. Typically, interest is calculated on the outstanding principal amount.

Get a Lower Rate

Can you get a lower interest rate on your credit card? Give your credit card company a call and find out. Lower interest rates means more of your money goes towards the principal amount when you pay more than the minimum payment.

Create a Budget

Track your monthly spending and create a budget. What have you been spending money on that you don’t need?

Talk to a Professional about Consolidating your Debt

Consider whether a consolidation loan is right for you. Cambrian offers a PayOff loan that lumps all your debt into one easy payment, at a lower rate. This allows more of your payment to be applied to the principal – reducing your interest cost, and allowing you to pay off your debt sooner. Meet with a Cambrian Advisor for more information.

Get Strategic With It

When it comes to paying down debt across multiple credit cards, there are two main debt reduction strategies: the snowball method and the avalanche method. While the snowball method is probably better known and has many prominent proponents, critics argue that you actually come out ahead using the avalanche method. There is no right or wrong method. There are pros and cons to both strategies.

Snowball Method

The snowball method suggests that when you’re paying off multiple credit cards, it’s best to pay off the card with the smallest balance first before moving on to the next smallest and so on. The idea is to pay as much as you can towards the smallest debt while sticking to the minimum payment for the remaining cards. Once the first card is paid off, you can then focus on the next card. It’s called the snowball method because once you finish paying off one debt you ‘roll’ the money you were paying onto another debt. As smaller debts are paid off, you feel a sense of accomplishment and these “quick wins” are important to keep you motivated.

Critics of the snowball method argue that it’s better to pay off the card with the highest interest rate first before moving on to the card with next highest rate and so on.

You pay off one debt completely before moving on
You have more money when you’re through making payments to one debt
It can take a while to pay off your debt, paying things off one-by-one
You will continue paying interest on the debts you’re making only minimum payments on

Avalanche Method

To many people, the avalanche method seems like a more efficient way to pay off your debt as you pay less interest over time. If you’re disciplined and motivated, this method can be very successful for you. To pay off your debt using the avalanche method means you pay off the debt with the highest interest rate first. Once that debit is paid in full, you move on to the next highest rate debt.

You save more money by eliminating the high interest debt as soon as possible
You’ll pay less interest
It will take longer before you pay off your fist debt in full
It can be harder to stay on track and feel motivated

Both methods have their merits and ultimately it boils down to deciding which is more important to you: the motivational edge the snowball method offers or knowing that you’re paying less in interest with the avalanche method.

Today’s Rates

*All rates and yields subject to change without notice.
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