Here’s Dave Ramsey’s Snowball Method for paying off credit cards:
Step 1 – Make a list of all your credit cards, ranked in order from the highest balance to the smallest balance.
Step 2 – Beginning with the card with the smallest balance, pay as much as you can on that card while paying the minimums on the other cards.
Step 3 – Once the card with the smallest balance is paid off, take the amount you were paying towards that card and apply to the card with the next lowest balance.
Step 4 – Keep on keepin’ on until ALL the cards are paid off.
Now, contrast Dave’s Snowball Method with Suze Orman’s Method found in The Road to Wealth:
Step 1 – Figure out the largest possible amount you can afford to pay each month toward all your credit card balances together.
Step 2 – Add $10 to each minimum payment that your credit card company is asking you to pay.
Step 3 – Add up all your minimum payments plus $10 added for each card.
Step 4 – Hopefully the difference between the figure found in Step 1 is GREATER than the figure in found in Step 3. If so, apply the difference to the card with the HIGHEST interest rate.
Step 5 – Once that card is paid off, you continue the process (Steps 1 – 4) until ALL the cards are paid off.
Which method’s the best?
Dave’s Snowball Method is great for boosting self-esteem since it gives you a great feeling when you have paid something off. It’s also a great feeling to take the amount that was applied to the smaller card balance and ADD it to the payment on the next smallest card.
Suze’s method makes the most sense mathematically since you are concentrating on the card that is costing you the most. And, once you get that card paid off, you can start on the next card. I also like the fact that you are paying MORE than the minimum payment each month, which is pretty much ignored with Dave’s Snowball Method.
The main thing to take away from this is to get your cards paid off as soon as possible. The method won’t really matter that much when it’s all said and done.
What do you guys think? Do you prefer one method over the other?