Can the Snowball Plan Eliminate Credit Card Debt? Pros and Cons of this Method

Can the Snowball Plan Eliminate Credit Card Debt

? Pros and Cons of this Method

The Debt Snowball Plan, created by Dave Ramsey, can create more debt in some situations, in effect snowballing the amount of money you owe. It has been promoted as a great way to eliminate credit card debt, but is it the best solution for you? It's amazingly effective for some people, yet it can cause interest charges to add up quickly for others.

To help you determine if the Snowball Plan is right for you, here's a look at the pros and cons of this debt reduction method.

What is the Debt Snowball Plan?

In a nutshell, Dave advises people to ignore the interest rates on their debt and instead focus on paying off the debt with the lowest total amount owing. He proposes that paying off one creditor can give you the psychological boost required to gain momentum to pay off the other debts.

The Pros

Following this plan simplifies the process of paying off your debts.

You only need to focus your attention to only debt at a time.

If the smallest debt can be settled in a reasonable amount of time, the act of paying it off can generate a sense of achievement. This may encourage you to continue paying off your debts. With each subsequent debt you pay off, the momentum continues.

The Cons

If your largest balance owing has the highest interest rate, then your total debt will grow faster due to the interest compounding at the higher rate. Instead of helping you to eliminate credit card debt, the plan can cause you to be in debt for a longer period of time.

If you owe similar amounts to your creditors, you will not really gain the benefit of a feeling of momentum in paying off your bills.

The plan does not offer any relief for people who are having difficulties making their minimum payments.

The Conclusion

For people who can easily pay their bills and have a few credit cards with small balances, then the Debt Snowball can be a very effective way to gain the momentum to eliminate credit card debt. On the other hand, if you owe similar amounts to each creditor or have a debt with a high balance that is also being charged the highest amount of interest, then it makes more financial sense to paying off the debt with the highest interest rate first.

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