Using Stacking and Snowballing To Pay Off Debt

By Kevin / December 23, 2016
Using Debt Stacking vs Debt nowballing

Should you be using debt stacking or debt snowballing to pay off your debts? Find out how to choose between these two debt reduction methods.

Okay, so we’ve probably all had enough of snowballs in any form this year. (Anyone else ready to pummel Puxatawny Phil for his completely inaccurate forecast?)

But debt snowballing — and debt stacking, its closely related cousin — is a good thing. Especially if you want to pay down or off your credit card debts.

Why not use your income tax refund to get a head start on paying down your debt using one of these time-tested, expert-approved credit card debt pay off plans?

Debt Snowballing: What is It?

Debt snowballing, the credit card debt payoff technique popularized by Dave Ramsey. It involves making a list of all your credit card and revolving debt. List the debt from smallest to largest and record your minimum payments for each card.

With this information in hand, it’s time to write your monthly household budget, if you don’t have one already. I like using Mint.com for budgeting, but there are plenty of programs, iPhone apps, or even plain pen and paper you can use to write your budget.

Presumably, you’ll be able to make at least the minimum payment on every one of your credit cards. If you can’t, it’s time to talk to a debt counseling service through the National Foundation for Credit Counseling and create a plan to consolidate your debt so you can afford the monthly payments. Or maybe even find a part-time job to help make ends meet.

Let’s assume, for now, that you look at your budget and not only can you make your minimum monthly payments, you also have a little bit left over after you’ve accounted for all your other expenses. Include a small amount for entertainment or modest “guilty pleasures” like a cup of coffee out once a week — not everyday!

The key to creating a successful budget is writing a budget you can realistically live on without depriving yourself too much. “Austerity” budgets won’t work because you’ll face temptation at every turn.

Now, you’ll start your debt snowballing plan to get out of credit card debt. It’s easy!

  • Stop using ALL your credit cards, even that juicy 5% cash back rewards card.
  • Make the minimum monthly payments on all your credit cards, except the one with the lowest balance.
  • Take the surplus money in your budget and pay the minimum payment PLUS that additional cash, toward your lowest balance credit card until it’s paid off. Also take any surprise money or windfalls you may receive (such as money from side jobs, work bonuses or your income tax refund) and put it toward this credit card.
  • As you continue to make minimum monthly payments on your other credit cards, the minimum payments will drop. As the minimum payment drops, take the difference in the amount and also put it toward your lowest balance credit card.
  • When your lowest balance credit card is paid off, put the entire amount you were paying toward that card toward payments on the next lowest balance card.

This is called “debt snowballing” because the cumulative effects of your smart credit behavior “snowballs” until all your debt is paid off.

Debt Stacking: What is it?

Some people call debt snowballing by the name debt stacking, but there’s a subtle difference in the two plans.

With debt stacking, list all your credit card debt in order from highest to lowest interest rates. Proceed as above, except pay off your credit card with the highest interest rate first.

Hybrid Debt Payoff Plan

One plan that is working for me is to use balance transfers to make sure that my highest interest credit card also has the lowest balance.

After consolidating my credit card debt this way, I only have two credit cards with a balance. Another bonus: this also simplifies bill paying and reduces the chance of missing payments.

You can also call your creditors to negotiate lower interest rates and avoid balance transfer fees. (Threatening to transfer a balance is one negotiation tactic you can use to get your interest rate reduced.)

Be careful when you use balance transfers, though.

Make sure you’ll really save money after factoring in balance transfer fees. And make sure you have the discipline to stop using the credit cards that are now paid off thanks to balance transfer offers.

If you don’t feel you have the discipline, or don’t want to pay balance transfer fees, stick to the conventional choices of debt stacking or debt snowballing to pay off your credit card debt fast!

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