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Debt Reduction: Snowballing versus Stacking

If you have debt, it’s time to tackle it. When it comes to methods of debt reduction, snowballing versus stacking, which is better?

I’m going to tell you right away; monetarily speaking, stacking wins. But nothing is ever that simple. Both methods have their merits and their drawbacks. We’ll take a detailed look at each so you can decide what method will work best for you.

Lots Of Debt

Forty million of us have student loan debt to the tune of $1.2 trillion dollars. Seven million of us are in default on those loans. Credit card debt isn’t much better. We have $712 billion in credit card debt outstanding, an average of $15,355 per household. Your debt is an emergency, but you can pay it off.

Snowballing Method

Snowballing means listing all of your debts in order of smallest to highest dollar amount and then using any extra money to pay off the smallest balance while only paying the minimums on the others. If you have a $5,000 student loan at 4% interest, a credit card balance of $6,000 with 17% interest, and a $10,000 car loan with 9% interest, you pay off the student loan first, followed by the credit card and finally the car.

Once the smallest debt is paid, you move to the next smallest using the same strategy and include the amount you were paying on the first debt into your monthly payment on the next. You continue to do this until all of the debts are paid, the largest being last one to go.

Stacking Method

To use the stacking method, you list your debts in order of highest to lowest interest rate, regardless of the dollar amount of the debt. You throw as much money as you can at the debt with the highest rate of interest. If you have the same debts we listed above, they would be ordered this way; the $6,000 credit card, the $10,000 car loan, and finally the $5,000 student loan.

Once each debt is paid, you move down to the next highest interest rate one, again, using the money you were paying towards the last debt, and do the same. So on and so on until all the debts are paid.

Snowballing Pros

A big pro for this method is the psychological win it provides you. It’s so satisfying to cross a debt off your list. That boost can also give you momentum; you killed that one, you can kill all of these debts! This kind of boost is no small thing.

Snowballing also makes your life just a little bit easier. Each debt paid off is one less payment you have to remember to make, one less check to mail or electronic payment to schedule.

This method is also likely to be faster. Paying off the smallest debt first might mean you can get rid of it in just a couple of months.

Snowballing Cons

It’s a big one; it costs more money in the end using the snowballing method. Interest is powerful, and when it’s working against you, it’s working hard. It also takes discipline to use this method. You free up money more quickly because you’re killing off those smaller debts faster than with the stacking method. What you’re supposed to do with that money is put it towards the next debt on the list.

But you didn’t get into debt because you have steel clad discipline. You might see those extra dollars in your checking account and think it’s more money to spend. No! Bad! Put it towards the next debt.

Stacking Pros

As I’ve written, the stacking method makes the most sense financially. You will pay less in interest if you choose this method. We pay 34% of the money we make over our lifetime to interest. Minimizing that as much as possible is a big cornerstone of being financially healthy.

Stacking Cons

Stacking’s biggest con is snowballing’s biggest pro. It can take awhile for pay off debts with the stacking method, and it can be discouraging. You don’t get the quick gratification of paying something off relatively fast.

Snowballing Versus Stacking, Head To Head

Let’s do a real numbers example to show the difference between the two methods:

Our smallest debt is $1000 with an interest rate of 19%. We pay $100 a month. By the time the debt is paid off, we will have paid $97.28 in interest.

Now let’s use the same numbers but this time, $1000 is not our biggest debt, but it does have the highest interest rate at the same 19%. Because we’re throwing everything at this one, we up our payment to $200 a month. At the end of this debt, we will have paid $50.33 in interest.

That’s a big difference; you will be paying nearly twice as much interest if you use the snowballing method versus the stacking method.

But We’re Humans, Not Computers

So if you have debt, which method should you choose to pay it off? Clearly the stacking method is superior. But that sort of black and white question doesn’t take emotion into account. The psychological victory of banging out a debt is a big deal.

The method that is best is the method that will work for you. The method that you will stick to. You don’t need our approval or Dave Ramsey’s approval. And choosing one method to get started doesn’t mean you can’t change methods down the road. If your debt seems overwhelming, start snowballing and bask in the satisfaction of killing off a debt or two.

After a few months of this, switch over to stacking for a little while and see if you can keep the same momentum. Chart out how much interest you will be saving in the long run. There is satisfaction in seeing that too. If you start to stall out, go back to snowballing.

There Is Help

Whatever method you choose, be sure that you are not adding to your debt. Bailing water out of a boat with a leak isn’t going to keep it from sinking. Now that there is room on those credit cards, leave it there. You must stop using them. You must make a budget and stick to it. Mint can help you with budgeting.

Let LMM take you to money school. We have designed courses that will teach you to grow your income, cut your expenses, budget your money, and destroy your debt. Come and be a part of our Community where you can ask questions and get advice without judgement. Living with constant money worries is terrible for your mental and physical health, your relationships, and your future. No one has to live that way. There is so much help out there. Just ask for it.

Show Notes

Ready for Zero: An on-line resource to help you tackle your debts.

LMM Community: Join the money revolution

Featured Image Photo Credit: “snowball!” by John Lodder on Flickr

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20 responses to “Debt Reduction: Snowballing versus Stacking”

  1. MrDonivan says:

    The best method is the one that you will finish! Just like in work-out routines, if you are a cardio person and hate weights, then it makes no sense to do weights for 1 month because you wont follow through to the finish. Same goes for which method you use to get rid of CC debt. I believe the Suze Ormon method briefly talked about in this episode is prioritizing credit scores during the payoff period. Of note: Later this year, the FICO method for factoring credit scores will change to start including and giving priority to payments being made – meaning – if you only make minimum payments, it will hurt your credit score – it is advised now that people get in their mind that your credit scores now require a REAL minimum of at least 2x the reported “minimum payment” on your bill. But that shouldn’t be an issue if you are debt free and “Pay in Full” each month or several times per month like you should be.

    • Very true MrDonivan. You’ve gotta consider though that if you pay the same amount each month regardless of the method the only major difference is you’ll finish faster with the Stack method?

      Need motivation? Sign up for – it’s free and you’ll get a super sexy graph mapping your progress until you’re debt free. All the benefits of the snowball method only it will get you out of debt quicker AND save you money. Boom!

    • Shannon_ReadyForZero says:

      Andrew is absolutely right – at ReadyForZero we work hard to keep you motivated while still helping you pay your debt off the fastest way possible! Check it out and let me know if you have any questions!

      Also – that’s really interesting about the changes to credit scores in relation to minimum payments. If you read an article that you still can get to easily, I would love it if you shared it here!

  2. Tania says:

    A huge part of getting out of debit is psychological. That’s where the emotional payoff comes in. I think a combined approach is fine. If you have a lot of different debt sources, a few with smaller balances and a few with larger balances, knocking off all the small balances is not only encouraging but also gives you less payments to manage going forward, which eases the process and makes the debtor more efficient in managing their debt going forward. If you close those accounts, it also removes some of the potential to charge more (although this can negatively impact your credit score, people with shopping and debt issues need to first and foremost stop the bleeding and the less retailer cards, the better). It is also easier to focus and less overwhelming to be looking at say three debts vs. six, even if you “get” the numbers. After that, I’d definitely then look at interest rates. If you can pay off several small store cards fairly quickly, in a month or two, the interest difference will be immaterial for the most part. Now if you only have three primary large debts where each one will take months or years to pay off, then the snowball method definitely doesn’t make sense. So, I don’t think one size fits all and each debtor needs to look at their own individual debt load to come up with a plan.

    • I agree, managing all those payments can be both confusing and tiring and that’s why we recommend leveraging technology to make your life simpler.

      Check out, it will track and graph all your debt for free and for practically nothing a month they can manage all your payments in one place. If your situation really is that complicated you should have a tool if for no other reason than to make sure you don’t make a mistake and miss a payment. You are only human of course :)

      • Shannon_ReadyForZero says:

        Thanks Andrew! Tania – I totally agree that many payments can be a lot to manage (and that retail cards should be closed immediately – they can be so dangerous and the interest rates are astronomical). As Andrew mentioned, ReadyForZero can automate all of your payments for you and track your progress (sending you trophies as you go!). Perhaps it could be the best of both worlds for you?

  3. Johnny Horta says:

    In this podcast you talked about writing off student loan on your taxes. However this is nice, you NEVER want to keep debt around in any form that you can write off on your taxes. This includes Mortgage debt, or student loan debt. Here is an example, If you have $100,000 in student loan debt with 6% interest rate you are going to pay around $6,000 in interest in that year. However according to the IRS you can only deduct the smaller of what you paid or $2,500. So we are going to use $2,500 in this case. So you lower your taxable income by $2,500 this year. Depending on what tax bracket you are in, let say 25%. So if you income is 75K a year and your are married filing jointly then your taxes are going to be paying $10,500 (using progressive tax brackets) in taxes this year. So you are paying $6,000 in interest for a $2,500 tax deduction that is going to save you about $625 ($2,500 deduction * 25% tax bracket, that’s being generous because of progressive tax brackets again) in taxes based on your tax bracket. I don’t know about you but I would never want to trade $6K for $0.6K. Don’t get me wrong if you have the debt then by all means take the deduction you would be stupid not to (unless your standard deduction is greater than your itemized), however don’t keep debt around just because of a deduction. Then your just throwing away money…and by the way I am a fan of the debt snowball method although it might not be the most math efficient, it is a great way to get small victories…money management is 80% behavior and 20% knowledge…just look at Matt he is winning with money and doesn’t know anything. Because of the Psychological game small victories are the key to breaking habits and modifying behavior this is just my 2 cents fill free to break it apart…. Great Podcast Keep up the great work…

    • Johnny, I agree with you 100%. In quite a few episodes I hammer it home that “your debt is an emergency” and it very much is. It is also very true that any savings on taxes will dwarf the amount you actually pay in interest.

      However, in some cases like a mortgage it doesn’t necessarily make sense to overpay. You wind up over concentrating your cash and taking on more risk than necessary with an asset that is very difficult to liquidate if needed. Of course we can only share the math and our opinions. It’s up to everyone to take in all the information and make the best decision for them. At the end of the day it really doesn’t matter how you get out of debt, as long as you do it :)

  4. Billiam says:

    Hey LMM crew,

    I’ve been getting your updates via Feedly, and I started listening to some of your podcasts during my commute to work in the car. It’s like listening to a local college radio show, but one that’s always talking about a topic I care about. (That’s a compliment I think, in a round-about sort of way.)

    Anyway, I thought it was kind of funny that you guys were ripping on DR. I am quite familiar with his rants. He does have a lot of solid advice, but I can’t stand his radio broadcasts because he comes across like a smug uncle who thinks everyone else is “Schstyooopid!” Haha. Whatevs.

    I fully agree with your advice on paying down the highest interest debt first. I will have to throw this perspective in the ring though: I have done temporary DR snowballs in the past. The clutch benefit aside from the emotional win, is that it eliminates one of your mandatory minimum payments. That’s one less crap sandwich on your financial plate each month, so it creates breathing room and reduces stress for people who are struggling with low income situations. I would view it only as a temporary strategy though, because as you pointed out quite clearly, it is not the mathematically best scenario.

    Thanks for the great podcast/blog and I hope to learn a bunch more from you.


    • Billiam, thanks for the local college radio show comparison – it kinda feels like that for me when we record we’re all about the grass roots approach. Meaningful changes start one person at a time!

      DR does know his shit but I think he’s losing touch with how things are done “in the future”. I’ve also listened to him and he does come across as a bit too big for his britches.

      Managing 5+ payments can be super stress inducing – that’s more than one payment a week! I can definitely see how it could dramatically simply your life just to remove 1-2 payments out of the mix.

      That said, I’d encourage you to check out – we kinda love the shit out of them. You can manage all your payments and automate the A-Z through their site as well as track your progress in a sexy graph. With them on your side you can get both the life simplification and the mathematically most efficient way to pay down your debt.

      • Billiam says:

        Excellent. Thanks for the RFZ recommendation. I am definitely going to set that up.

        • Shannon_ReadyForZero says:

          Billiam – you make a really good point and I love the imagery ;). I work at ReadyForZero so if you have any questions about how it works, let me know!

          Andrew – you’re awesome. That is all. :)

          • Billiam says:

            Hey Shannon,

            Sorry to use this thread to ask an RFZ question, but any chance you could explain or give an example of the “include this in your payment plan” feature? (Like when you would want or not want this checked.)


          • Shannon_ReadyForZero says:

            No problem at all and great question! So, the “include this in your payment plan” feature is really there to give more flexibility to your plan. We always focus on the highest interest rate account first, but if you really really don’t want to do that, you can “un-include” your current target so that your desired account defaults to becoming the new target. There are also some personal reasons you might want to do this. For instance, when I started using RFZ, I linked credit card and student loan debt. But my student loan debt amount was so huge that I couldn’t even bear to see it there as I aggressively paid off my credit card. So I kept making the minimum payments on my student loan debt but kept my RFZ account only showing the credit cards in the plan so I wouldn’t get too discouraged by the epic amount of payoff years my student loan added. Now that the credit card is paid off, I re-included my student loans and am focusing on the progress for those. Make sense? This is a totally personal approach, but hopefully shows some good examples of why we give you that flexibility.

          • Billiam says:

            Excellent. Thanks much for the quick helpful response.

          • Shannon_ReadyForZero says:

            You’re very welcome :).

  5. Cassia Carmichael says:

    I used to listen to Dave Ramsey but grew very tired of his condescending attitude and absolute rejection of alternative approaches. He 100% discourages consolidation loans. I understand why but not everyone is going to go right back and load their cards up like he suggests they will.

    • Cassia, I agree, he’s become a bit stubborn in his ways and detached from the people he helps.

      It’s a shame he thinks so low of his audience. Sure, some people will gorge on “refinance loans” but there’s nothing you can do to stop them. Doesn’t mean you shouldn’t educate the people who could really benefit from that information and WILL do the right thing. I’m pretty sure there’s a saying on this… something about throwing the baby out with the bath water. Common Ramsey.

  6. New to your site and podcast, listening to a lot of old episodes and catching up. Is there a good site that does what ReadyForZero did? Just Mint?

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