Using credit cards is the easiest way to get into debt, especially when it comes to revolving cards. Before you know it, that minimum monthly payment on the card will have created a huge debt that you will have to face.
And it is that, these cards in revolving mode work with a small fee that amortizes the debt, but never covers the principal. In other words, each month they add interest and more interest to pay. Add other cards, a personal loan and mobile financing and you already have what is known as a debt spiral.
What can be done in that case? How is it possible to get out of bank and revolving credit card debt? There are different formulas to manage those debts. One of the most efficient methods to get rid of them is the cascade method.
Get out of debt progressively and in order
The cascade method works progressively and allows you to end all card debts one by one faster and faster.
In essence, it consists of starting by paying the smallest debt, then with the next smallest amount and continuing in this way with all of them until there is no credit card or personal loan debt left.
This plan to get rid of credit card debt is easy to implement and allows you to stay motivated all the way. As the debts are paid off one after the other, you see progress and that is an incentive to keep going.
how to start it
This tool to get out of card debt consists of four steps plus one from the previous one that is very simple: save all your credit cards and stop using them to avoid generating more debt.
Instead, use a debit card. This way you will understand that the debt does not continue to grow and you will be able to start reducing it.
With this in mind, the first step is to list all your debts. In short, knowing your enemy and knowing exactly what you’re up against.
The second step is to list those debts from highest to lowest according to their amount. There is a variant of the cascade method known as the avalanche method where the debts are listed according to the interest rate. In this case, the order is for the amount you owe. Now I understand why.
The third step is to advance the amortization of the first of the loans. To do this you can use part of your savings or review your monthly expenses to save more each month. There are ways to save even on minimum wage.
The important thing is to advance that first debt as quickly as possible. Once you finish paying it off, you will use the money that you used to allocate each month to pay off that debt to pay off the second one and so on (the fourth step). With each step you take, you will free up more money and pay your debts faster. That is why you start with the smallest card debt.
A practical example
Nothing as an example to see this tool in practice. Let’s imagine a person who has four different debts and a monthly savings capacity of 250 euros:
Debt 1, of 100 euros per month for a card with 1,400 euros left to pay. Debt 2, of 175 euros per month for a personal loan with 4,200 euros to be repaid. Debt 4, of 125 euros per month with 5,000 euros to be paid.
In total, the monthly payments are 600 euros per month and the debt is 13,600 euros. With this method, you will use those 250 euros to advance the payment of Debt 1, which you would finish paying off in four months instead of 14.
Next, you would add the 100 euros of the debt to your savings and you would already have 350 euros to pay off Debt 2, to which you can allocate 425 euros per month. In 9 months it would be settled and would continue with Debt 3.
In the end, he would pay off all his credit card and revoling debt in 16 months instead of the 40 it would take with the normal payment schedule. This is how they would fall one after another.
Is it convenient to claim card debts?
There is an additional tool to get out of the cards: claim the revolving card when the interest they charge is abusive.
The cards in revolving mode are the ones that can be claimed with the best chance of success, although since the beginning of the year it has been more difficult to do so. The reason is that the Bank of Spain has clarified how the interests of the cards should be compared to know if they are abusive or not. It must be remembered that, according to Supreme Court rulings, it is considered an abusive rate when it is decidedly higher than the average for other similar loans. This happens for loans at least six percentage points above the average for that type of debt.
In any case, there are specialized entities that study the possibilities of claiming for free and to which you can turn in case of doubt.
