Before we get back to our credit card payoff series, where I’ve shown you how to get out of credit card debt using the debt snowball strategy, I want to bring something else to your attention for a moment. I’m talking about student loans… On August 24, 2022, news came from the White House. And if you have student loans, it may affect you. If you make less than $125,000 per year (or less than $250,000 if you’re married), the Department of Education (DEO) is offering to cancel up to $20,000 of your student loans if you received a Pell Grant or up to $10,000 for non-Pell Grant recipients. This is part of a three-part student loan relief program that also pushes the student loan repayment— once scheduled to resume on September 1—to the end of 2022. And here are the other two parts:
- Monthly payments (once resumed in 2023) will be cut to 5% of the borrower’s discretionary income—half the current rate.
- An increased effort to doubling the maximum Pell Grant as well as offering free community college.
So, if you or someone you know would like to find out how to claim relief, bookmark the DEO’s Federal Student Aid website and sign up for updates at https://www.ed.gov/subscriptions by entering your email and marking the first checkbox. That’s how you’ll get all the information and instructions you need. Now, back to credit cards… After 1… There’s 2 Remember, as you’re using the debt snowball to pay off your credit cards, you should focus on one at a time. So, starting with the one with the lowest amount owed (Credit Card A), getting rid of the balance more quickly means you need to make a payment above the minimum. As we went over last time, if you’re the average person with four credit cards and the minimum payment for all of them is $35, you’ll make a payment above the minimum on just one of them. In our example from last time, if you have $170 left over each month, your payment on Card A would be $205. But once you get that balance on Card A down to $0, it’s time to move on to the second card—the one with the lowest balance (Credit Card B). What Do Snowballs Do? Should Card B’s payment be the $170 you were using to pay off Card A? Actually, it should be $170 plus $35… plus another $35. Remember, as a snowball rolls, it picks up more snow and becomes a larger snowball. Now that Card A is paid off, the $205 you were using to pay it off with can now be added to the $35 minimum payment on Card B. That’s $240. Following this strategy, you may even find that as you pay off more debt, you can pay off the debts that follow at an even faster pace. So, if you’re having a tough time getting started with the first one, try using a debt payoff calculator. A good one will do the math for you and tell you how much interest and time you’ll save. You’re welcome to use the calculator here, here, or here. I’ve used each of them several times. I’d also recommend writing down why you want to get rid of your debt in the first place. There’s nothing wrong with some motivation. It’s actually the kind of reminder we all need for the things that will be worth the effort, as long as we put in the time and hard work.
With gratitude,
Melody C. Stampley, MS
Writer, Editor, Financial Coach
