Why Snowballing Debt doesn't work.....

tpurch

Why Snowballing doesn't work.....well it didn't for me!!!

The Theory is sound but in practice its just cost me time and Money. Here is why

a little over a year ago, I decided I have to get a grip and reduce the amount of debt I owed. Having read about Snowballing I thought I would give it ago. So I decided I would target my largest credit card debt as the first one (I owe around 8000 to that)

I reduced my payments to my other cards and started paying more against that card. After a couple of months I received a letter informing me that the rate was going up from 15.9% to 27.9%, as you can imagine I was none to pleased so I called the company (Virgin - MBNA) and I managed to get them to lower it again ( but they only lowered to 17.9%) .

In the meantime I then received a letter from another credit card company informing me that the rate was going up to 22.9%. I called them and they said that its because I am only making the minimum payments so it looks like a risk...... A couple weeks later, I receive another letter from Virgin informing me that the payment date is changing.... then a couple months later I recieve another letter telling me that the credit card rate is increasing to 29.9%. What is going on, I called them again and they then lower it to 20.9%. I continue to pay and (not use the card) and then I start receiving PIN reminders (without requesting). and they also continue to move the payment date back. This april I receive a letter from virgin again.... the APR is going up to 29.9%. I have tried several times to get it reduced but with no luck.....

NET result card is no lower than it was a year ago and I am now paying at a higher APR on all my cards.


So, how can snowballing work if when you try and apply it the credit companies up the APR's?? if anyone is thinking of snowballing debt make sure its on a fixed rate or its locked on a life of balance transfer or transfer to a 0% Deal.

I have been lucky as I have struck a deal with a family member and I have managed to clear my debt with virgin credit card. Therefore I will not have to pay the outragous 29.9% interest. I can now double the payments against on my other credit cards and hopefully get the APR lowered too........

patchwork_cat

Hi
I am sure that there are other members who will be along soon who are better informed than I, but it is logical.

I don't think that credit cards up the rate because you are paying minimum amount- is it not based on your credit rating? It sounds to me that Virgin are mucking you about - could you loose this card, do a balance transfer or is that not an option?

hypno06

It may have not made any difference whether you are making minimum payments or more than that - we have been snowballing but do make extra payments to all of our cards because they are all on more or less the same extortionate interest rate.

Despite having made what I consider to be significant overpayments on our Egg cards, they have increased the rate on my card from 16.9% to 24.9% and on hubby's card from 16.9% to 26.9%!

When I questioned them they just said it was based on the way we manage our accounts (how we are overpaying, never late, and have actually reduced our credit limit voluntarily!) and our financial circumstances (we have reduced our overall debt by about 50% in the last year!) and refused to reduce the rate to something lower.

So, despite overpaying and not being late etc we are still having our rate put up!

I understand what you are saying and know that it is frustrating to say the least when you are trying to do things the "right" way (if there is such a thing) but the card companies are a law unto themselves and may well have done this anyway.

Keep going though, you are doing well.

Crown

Hi, I realise what your saying but surely this isnt to say that Snowballing doesnt work but proofs that Debt (especially Credit Cards) are bad option all-round.

Snowballing does work for many people and it does seem rather unfortunate that the comapnies in your case raised the interest.

I was Snowballing my debts for around 2 years without any problems and took advantage of as many LOB offers as I could at the time.

I currently am not snowballing at present as due to being made redundant a while back I am now in the position that the banks have frozen all my interest charges but I am still sticking the the principles of the Snowballing idea will do so until my debts are eliminated.

elantan

i can offer no practical advice sorry but i never thought that companies would be allowed to do this and am totally shocked

vix1978_2

Virgin have recently upped my credit card limit. I didn't call them about it, but I am also only paying the minimum on this card at the moment.

ZTD

Question: "Why are we raising my interest rate?"

A1. "Because you are only paying minimum payments, hence a greater risk."
A2. "Because you are paying so much off, we need to get our profit from you quicker than we thought."
A3. "Because Mars is ascendant into the cusp of Venus."
A4. "Because we've looked at your credit report and decided that you may not be able to BT."
A5. "Because we can. What are you going to do about it?"

There is no mention of snowballing in any of that. There is an implication in the answer to the following question.

Q. "When are you going to lower my interest rate to make my debt easier to pay off, and so lessen your profit?"

A. "When Satan skis to work."

Storm

Hi, as others have said, there doesn't seem to be any rhyme or reason to credit cards APR. I've got an empty Egg card (which I'm only holding on to to see if I get an anniversary 0% BT offer next month!) and I recently got a letter saying the APR was going up - and that's with nothing on the card!

I agree with Al Mac that it may well be partly to do with the banks having to reduce their penalty charges & paying out for all the reclaimed ones, but at the end of the day they're there to make money out of you, and they will do this in whatever way they can!

tpurch

Al_Mac wrote: »

Changing of payment dates does seem a little odd.

Not really, it seems simple to me, The normal repayment date was 19th of the month. They had looked at the date I pay my bill every month the 15th (i.e. Payday) and then subtracted one from that! Making the payment date 14th of the month

In my opinion it was designed to assess the risk as if I didn't have the funds to make the payment they could justify a interest rate hike ( or of course apply latepayment fees to the account).

The Letter I received just said that they are moving the repayment date and to look on the next statement for the new date, ........I just knew that they were going to move the date to the day before payday so I planned for it - making 2 payments that month.

After that, they started to slip back the date one day at a time (every couple of months) but they continued add the interest and generate the next months statement from the 19th of the month ( I am not sure what that does in terms of interest - I haven't worked it out).

Thanks everyone that replied to the post!

I guess it was unfair to say that snowballing doesn't work, I could have been in a worse position if the rates had increased and I hadn't started to deal with my debts.

I just wanted to highlight that the theory only works if the credit companies don't stick it to you!

Until now, I naively believed that although the APRs are variable, the rate was unlikely to change by much without a significant change in interest rates or circumstances.

Just goes to show how wrong you can be.....

Broken_hearted

Snowballing works because you pay the debt with the highest interest first.

Uniscots97

My interest rate went up too. I rang them fuming as its supposed to be for lifetime of the balance, got through to a call centre in some far off land, only to be patronised by the agent who told me to speak proper english when i asked her to speak up as I couldn't hear her. She then told me they weren't making enough money out of me as I was paying off my credit card. I asked to speak to her superviser and she said "sure", put me on hold then cut the call. So what did I do, put my figures back into the snowball calculator and will pay this off first. Determined to pay this one in particular off first so I can tell them where to shove their card. Ok, so same as me your interest rates have gone up but why not recalculate through the snowball calculator?