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Shah: How snowballs and avalanches can reduce your debt
Navin Shah
Navin Shah

The average American household currently carries about $7,000 in revolving credit card debt and pays $1,141 in interest annually on this debt, as reported by the personal finance website NerdWallet.  And many consumers added further to their credit card debt during the recent holiday buying season. 

So, it’s not surprising that the top two financial resolutions by Americans for 2019 are to save more and to pay down debt, according to a survey by Fidelity Investments.  After all, when we reduce or eliminate the amount of money we owe to others, we gain control over our finances – and that translates into peace of mind.

However, shedding debt is like shedding weight – easier to wish for than to achieve.  Here are some tips that can help you lose the weight of credit card debt.

Start by making three lists:  

(1) all of your debts and loans, with the following information for each item – the total amount you owe, the minimum payment you are required to make each month, and the interest rate you are being charged

(2) all of your recurring essential payments each month such as rent or mortgage, car or transportation, utilities, food, medicine, and a small amount for emergencies – do not include discretionary expenses such as vacation travel, eating out, clothing (beyond your basic wardrobe or work uniform), or electronics

(3) all your monthly income from various sources – show the net amounts you receive after taxes or other required withholding 

The total of list No. 3 – your monthly net income – should be more than the total of list No. 2, namely your essential monthly expenses.  The difference between the total of list No. 2 and the total of list No. 3 is the amount of money you have left each month to pay towards the total of list No. 1 – your debt.     

Think of this amount as your monthly “debt payment funds.”  Your next step is to allocate these debt payment funds among your various debts.

The two most popular strategies to choose from are the snowball and the avalanche.  

Under the snowball method, you pay the minimum amount due on every one of your debts – then you use the remainder of your “debt payment funds” toward paying off the debt that has the smallest amount due.  

Under the avalanche method, you also pay the minimum amount due on every one of your debts – but then you use the remainder of your “debt payment funds” toward paying off the debt that is charging you the highest interest rate.  

These two strategies are similar – and they both work -- but the advantage of the avalanche method is that you pay less in interest charges over the long-term because you are paying down your most expensive debts.    

In contrast, the snowball method can be more motivational and psychologically rewarding because you see results faster – you are paying off loans entirely and they disappear from your list of obligations.  

The key to progress is keeping your amount of “debt payment funds” the same each month or perhaps even increasing them if possible.  You are paying off certain loans, but you keep chipping away further at the remaining balances until all your debts are gone.  

My recommendation is to consider using a combination of the snowball and the avalanche methods:  start by tackling your debts that have an annual interest rate of 10 percent or more, and pay them off in full -- from smallest amount due to largest amount due.    

After you’ve eliminated the loans with interest rates above 10 percent, you can move to paying your remaining debts according to the snowball method.

Another option is to strategically use “balance transfers.”  Some credit cards offer six, 12, or perhaps even 18 months at zero interest if you transfer the balance of another credit card to your account.  Sometimes the transfer is free and sometimes there is a small fee, but this is an especially useful tactic if you can transfer the balance from a high-interest card to an interest-free account.  

You can also use the “balance transfer” technique to consolidate certain high-interest balances into a single interest-free payment.  Consider this:  if you move $7,000 of credit card debt to a balance transfer card with 15 months of zero percent interest and no transfer fee, you typically save almost $800 in interest.

If you’re ready for an especially aggressive strategy, stop ALL discretionary shopping and spending two months – you’ll be amazed at how far ahead you get.  And quickly.

Everyone’s mindset and financial situation is different, so you will want to adapt and adjust according to what’s right for you.  There are many ways of reducing debt that work, but more important than numbers is motivation.  

Or as author and financial expert Dave Ramsey put it, paying off debt is 20 percent knowledge and 80 percent behavior.  You must change your spending habits.  That’s a New Year’s resolution worth making – and keeping! 

Navin Shah is Chairman of Royal Hotel Investments, which owns and operates two hotels in Covington and one in Conyers.  He is also Vice Chairman of Embassy National Bank, a community bank in Lawrenceville that he helped establish in 2007 and has become one of the leading SBA “Preferred Lenders” in the southeast.  He can be reached by e-mail at