Snowballing question

nonns

Hi folks,

Got a question ref snowballing. I understand what snowballing is and how it works but...when you have a lot of credit cards and other debts how do you handle the various options for paying off the debts optimally.

The standard advice is to pay off the highest rate debt first but what happens if for example by making a couple of payments on a much lower rate debt you could then create a balance transfer opportunity. There are so many combinations of these things that I'm getting confused.

Perhaps I should just tackle the largest rate debts first keeping it simple but it occurs to me that there might be a whole lot more to be saved by doing it some other way.

Any tools available to help with this?

Thanks in advance

mrsspendalot

hi. I found it easier personally to pay off my debts in size of balance order rather than interest rate order. I had no opportunity for balance transferring, but I found smaller balances easier to clear.

OberonSH

There's the snowball calculator (www.whatsthecost.com), this will tell you the best way to save yourself interest, but of course there's the age old argument of saving interest versus the boost from clearing a few smaller debts.

As for clearing space to balance transfer, think you may just have to spend some time with a pen and paper!

Jacks_xxx

nonns wrote: »

Hi folks,

Got a question ref snowballing. I understand what snowballing is and how it works but...when you have a lot of credit cards and other debts how do you handle the various options for paying off the debts optimally.

The standard advice is to pay off the highest rate debt first but what happens if for example by making a couple of payments on a much lower rate debt you could then create a balance transfer opportunity. There are so many combinations of these things that I'm getting confused.

Perhaps I should just tackle the largest rate debts first keeping it simple but it occurs to me that there might be a whole lot more to be saved by doing it some other way.

Any tools available to help with this?

Thanks in advance

:wave: Hiya hon!

I don't know of a specific tool to help with this cherub, but I'm pretty sure you could work it out with a pen and paper.

You just need to know how much interest you'll be paying on the higher interest debt whilst you're "making room" on the lower interest one and add that to the balance transfer fee that it'll cost you to move the debt over....

then...

work out how much interest it would cost over the whole term you to do it this way versus how much it'll cost you to keep it simple and pay off the most expensive debts first.

My very UN-mathematical brain says it would depend on the particular interest rates, and the time frames involved whether this would be the optimal way to do things.

I really hope somebody moee clued up comes along, cos if there's a better way to do it than I'm doing then I'll be all over it!

Love Jacks xxx

nonns

Thanks very much for all the responses so far.

I'm trying to crunch the problem in a spreadsheet. Trouble is like I said too many cards and too many combinations to optimise. I just thought there might be a tool (the snowballing calculator isn't quite sophisticated enough) out there. I guess I will just have to be diligent and make a bigger effort.

D*mn that diligence thing. :rolleyes:

I guess I should thank my lucky stars that in spite of the fact that I've got a large debt I can actually afford it (as long as I remain employed) which gives me certain flexibility. It still doesn't stop me worrying tho' .

Thank you very much for your help.

GettingThingsDone

Hi nonns - welcome to DFW!

I use the slightly sub-optimal route of solving the problem in real-time i.e. just stick to the simple rule of paying off the highest rate interest debt first.

And to simplify things further, aim to reduce the number of cards you hold.

I let these two simple rules guide my actions as I think it forces change rather than just relying on optimising the existing setup. i.e. it forces me to find cheaper debt and in a more managable form.

Hope that helps

gtd

warburtonrichard

Hi nonns

I do as you originally said; I pay off some things early to get balance transfer opportunities.

I made my own snowball calculator in excel, which isn't very techologically sophisticated, but let me try things out in various orders.

As it happened, my highest APRs at the time of my LBM were my store cards which were smaller, so easiest to get rid of. It was easiest to work on a small target than a big one as you felt the benefit of it and got to have a regular cutting up of the cards ceremony.

The bottom line is, there's no right answer, there's the financial element and the human element, if you're not motivated to keep paying off, it doesn't work.

Don't forget the balance transfer rule though....

if it's a balance transfer for 6 months at 5%, with a fee of 3%, it's like an APR of 11% (twice a year 3% plus 5% for the interest). NOW is the balance transfer the best option?