Get Rid of Your Credit Card Debt in 7 Easy Steps Using Avalanche Method

Credit card debt is an unsecured consumer debt which you incur when you use your credit card to pay for goods or services, or withdraw money to pay off previous debts. Debt keeps accumulating through the interest charged and interest rates on credit card debt can be as high as 10-30%.

Further, if you don’t pay your credit card debt on time, the credit card issuing bank or company charges a late payment penalty which further raises the amount you have to pay. Apart from that, it also reports late payment to credit rating agencies that lower your credit score. Once your credit score is lowered, even the other creditors whom you might have paid on time may increase the interest rates they are charging you on their loans. Thus your credit card debt spirals exponentially and you realize it only when you are deep inside the trap.
However, you can definitely get out of your credit card debt if you plan wisely and proceed according to that.

There are several strategies for doing this. Today, we are going to tell you about the Avalanche method. In this method, we dedicate every extra dollar towards the debt with the highest interest rate. When you follow this method, you will end up paying less as you will save all the interest charges.

Here is how to eliminate your debt using Avalanche method:

1. First, list all your credit cards. Write down the details of the interest rate, outstanding payment and minimum payment against each. You can easily find this information on the last monthly statement of each card.

2. Arrange the cards on the list in the descending order of interest rate. The card with the highest rate of interest will go at the top while that with the lowest will come at the bottom.

3. Add up the minimum payments. The amount you get is the absolute minimum payment you have to make each month. However, to get out of your credit card debt, you must pay more than the minimum.

4. Therefore, check your budget and see how much you can pay apart from the minimum each month. Don’t bother if it is a small amount, every little bit counts.

5. As your payments fall due, pay the minimum amount on each card except the one which is at the top of your list. That one carries the highest interest rate and costs you the most. So, whatever extra money you have found in your budget, pay it on that card.

6. Continue with the process until you pay off your first card. Now transfer the extra amount you were paying to the second card on your list, while continuing to pay the minimum amounts on other cards.

7. Go on with the process until you pay off all your credit card debt in this manner.

How It Works?

Your minimum credit card debt payments are not fixed; they are calculated as a percentage of the outstanding balance on the card. If you keep on paying only the minimum amount, it may take years to pay off your credit card debt, as your outstanding balance remains more or less the same, or even increases – after all, you have to use the cards from time to time for your various requirements even while you are trying to pay off the credit card debt.

However, when you follow the Avalanche method of paying as much extra money as possible on the highest interest bearing card, the balance slowly begins to come down and with it, the minimum amount payable also comes down. However, if you ignore this fact and keep on paying the same minimum amount you had decided earlier, more money will start going into paying off your credit card debt each month.

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