Debt Snowball

How Fast Can You Pay Off Debt With Debt Stacking & Debt Snowball Methods?

Payoff debt the smart way

Source: Wix Photo Gallery

Updated: June 6, 2019

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Often commonly mistaken as the same, debt stacking and debt snowball apply different methods to achieving the same goal in paying off debt.  


What's the Difference between Debt Stacking and Debt Snowball?

In the simplest explanation, the difference between debt stacking and debt snowball is knowing which debt to pay off first in sequence order.  

Debt stacking requires you list all of your household debt and organize it from highest to lowest interest rate.  Applying the payment structure from highest interest rate to the lowest rate is the fastest debt payment method, mathematically.  

For example, let's use three debts, which include the following interest rates: 22%, 15%, 4%.  To rid any skepticism, we are going to assume each obligation requires a minimum payment of $200 per month.


By focusing on the debt with the highest interest rate by making payments larger than the minimum amount, you drastically reduce the balance of the obligation at a faster rate.  When utilizing this method, ensure you are making consistent payments to the other debts based on its required monthly minimum amount.   

The 22% rate every month is 1.833% charge.  Therefore, $3,400 x 1.833% = $62.32 added each month compared to a monthly charge of $27.94 (15%/12= 1.25% per month x $2,235).  

Making additional payments on the $62.32 versus the $27.94 per month is common sense and is the fast method to watch your debt shrink.

Debt snowball organizes your debt from the lowest balance to the highest balance, not by interest rates.  For example, using the balances of the three debts in the illustration above, we arrange the obligations by focusing on paying off the lowest balance first with additional payments that exceed the minimum balance while making the required minimum debt payments on the remaining debt. 


Once the first debt is paid off, we apply the same monthly payment from the first debt to the second lowest debt plus the payment we made to this debt.  

Which is Best: Debt Stacking or Debt Snowball?

You've already learned that mathematically, debt stacking is the fastest method in paying off debt.  So you might be asking, "Why doesn't everyone use this method then?"  It boils down to human behavior. 

There is a strong correlation in the human brain that associates positivity, optimism, and motivation when seeing progress made towards achieving a goal.  According to Psychology Today, "While an optimistic outlook provides us with a rosy outlook, it also turns our minds towards the future."  Your optimistic future is paying off that debt!

With the debt snowball, you physically see your debt balances drop ,and once that debt is paid off, those same payments of the debt are reapplied to the second lowest balance.  It frees up cash flow helping your debts drop fast. 

Try our customized Debt Stacking Worksheet, and you can choose which method to utilize in your financial situation.


Should I Pay Off the Smallest Debt First?

Are you struggling to make your minimum payments every month or do you have extra cash to spare?  If cash flow isn't an issue, then focus on paying off debt with the highest interest rate.  If you are struggling to make progress in paying down your debt balances and have very little extra cash each month, then apply the Debt Snowball Method by focusing on paying down the debt with the lowest balance first while making minimum payments on the rest of the debt. 

Once you pay off this debt, use that same payment from the first debt, and apply it with the minimum monthly payment.  Continue this process until you paid off every debt.


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