There’s always been quite a debate on whether debt stacking or debt snowball prevails. Debt stacking is also known as debt avalanche, which was derived from Dave Ramsey’s popular Debt Snowball plan. There’s been quite a debate on whether debt stacking or debt snowball works better. From a financial perspective, debt stacking will save you more money. However, becoming debt free only works if you’re motivated to stay on track.
Debt stacking involves paying off your highest interest rate credit card first, regardless of what the balance. On the contrary, debt snowball involves paying off the smallest account first. The reason why the debt snowball method has become a better choice for some people is because it gives them extra motivation to pay off their debts. They like to see “zero balances” on their credit cards, and they celebrate this small victory. Let’s take a look to see how each plan differs.
For each example, we’ll use the same scenario. Let’s assume we have $10,000 in credit card debt and you can afford $575/month towards your credit cards.
1) Chase- $3,200 balance, $150 minimum payment, 19.99% interest rate
2) Capital One- $4,000 balance, $200 minimum payment, 9.99% interest rate
3) Citi- $1,000 balance, $45 minimum payment, 14% interest rate
4) Wells Fargo – $1,800 balance, $80 minimum payment, 24% interest rate
Debt Stacking Results
If you choose to follow the debt stacking method, the first account to be paid off is Wells Fargo and the last account to be paid off is Capital One. Assuming you’re able to pay $575/month until you’re debt free, you would’ve paid $1362.37 in interest. It will take you 17 months to become debt free.
Debt Snowball Results
If you choose to follow the debt snowball method, the first account to be paid off is Citi and the last account to be paid off is Capital One. Again, assuming you’re able to pay $575/month until you’re debt free, you would’ve paid $1402.77 in interest. It will take you 17 months to become debt free.
The Bottom Line
The debt stacking approach obviously saves you more money, but getting out of debt has a lot to do with keeping motivated and being persistent. Take your small victories when you can, a $50 difference in savings isn’t worth the risk to lose motivation.