There are a variety of ways to approach debt reduction, but the two most effective methods to consider are debt stacking and debt snowball. Debt stacking entails first paying off debts with higher interest rates or balances. The debt snowball strategy involves paying smaller bills first before moving on to paying larger ones. The most effective strategy for you depends on your budget. But keep in mind all the following considerations when formulating your debt-reduction master plan.

Debt snowball method

The first step in deciding how to pay down your debts is to analyze all of your debt burdens. First, write down all of your small debts, including any applicable interest rates. Don’t focus solely on high-balance credit cards or large loans of any kind. Paying off short-term debts is the first priority in the debt snowball method. Second, examine your monthly budget and income status to see if you are able to pay off your smaller balances. If unable to pay, contact your creditors to negotiate a fair monthly payment plan, or try to boost your income stream.

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Debt stacking method

Credit card debt is one of the most difficult areas in which people struggle. Yet, credit card debt can be managed with a sound plan in place. If you are swimming in credit card debt with high balances, debt stacking can work to your advantage. Pay down cards with the highest interest rates or large balances first. Pay what you can, and use any extra money you have to pay balances with the next highest balance. If you have a credit card with a temporary low-interest rate, pay off the debt in full before the rate balloons. 

High-debt pay down

If you’re not dealing with high credit card debt but have mounting bills due, you can still implement the debt-stacking plan by paying off bills with high balances first. If you have towering long-term debts, such as a student loan or auto debt, try to pay those down, or work with creditors to see if you can achieve a lower monthly payment. You can also apply the snowball method to personal loans. If you are struggling with utility payments, contact a representative to set up a budget billing plan. Budget billing sets a certain amount to be paid each month, which allows predictability in managing a payment plan.

Low-debt pay down

Debt snowball is the most effective strategy if you are contending with a wide array of smaller bills. First, pay the bills with the least amount owed, or try to eliminate frivolous bill obligations, such as magazine subscriptions. While there is no right or wrong choice in terms of selecting the best debt reduction strategy, studies reveal that people who pay off smaller debts stand a better chance of achieving financial security in the long run. Additionally, snowball stacking can keep creditors at bay while reducing your chances of missing a bill payment – a factor which inevitably lowers your credit score.