In the last blog Debt and Stress Reduction by Tracking Your Finances, we talked about reducing your stress by using a debt reduction plan to pay down your debts by paying more than the monthly interest payments. The most common strategies to pay down debts are the Snowball strategy and the Stacked strategy.


snowball effect debt

Try paying down your debts using the snowball effect.


The Snowball strategy is where minimum repayments are maintained on all debts to avoid penalty fees and any surplus or extra funds are allocated towards the debt with the smallest balance.  Once cleared the repayment amount is rolled over to the next debt with the smallest balance.  This process is continued until all debts have been cleared.  Clearing debts with the smallest balance gives you a sense of achievement much earlier than if you focused on clearing a larger debt.  This strategy is good for those who need extra motivation to help stay on track and to remain focused on achieving their debt clearing goals.


stack debt reduction strategy

You could try stacking to reduce your debt by allocating any surplus funds towards the debts with the highest interest rate.

The Stacked strategy is similar to the Snowball strategy, minimum repayments must be maintained on all debts to avoid penalty fees.  However, any surplus or extra funds are allocated towards the debt with the highest interest rate.  The repayment amount is then rolled over to the debt with the next highest interest rate.  This process is continued until all debts have been cleared.

The aim of this strategy is to save money on interest repayments.  Although it may take longer to clear a debt and gain a sense of achievement, the amount of interest saved in the long run can be very significant.  This option is great for those who are mainly focused on saving as much money as possible.

The best option is one strategy or a combination of strategies that you feel comfortable with.  If you need to feel like you’re making ground, then perhaps you need to implement the snowball.  If you’re more concerned about not paying more than you absolutely have to, then the stacked option is your best bet.  However, if you are impartial to either option then try a combination of strategies until you feel you have the best fit for you and your situation.

Debt reduction requires dedication, determination and persistence.

A Practical Approach

Case study:

Currently, I am implementing the snowball strategy, as my main concern is to clear as many debts as I can within the next 7 months.  After this time I will be on maternity leave and will be receiving significantly reduced income.  As a result I need to either increase my income or reduce our expenses to maintain the same amount of disposable income (money left over after all bills are paid). I felt the best way for me to do this was to get rid of some debts before having the baby to release some money and to put it back into our pockets.  The stacked strategy is not applicable in this situation as I am not concerned about saving money on interest at all.  My only concern at the moment is to maintain the same quality of life for my family for when the new baby arrives.  So when he or she gets here we can just relax and enjoy our new addition without worrying about how to make ends meet.

Kylie Smallman is a compliance officer at Debt Cutter.  She has experience in the financial planning industry and is passionate about all things budgeting.  Her role is to help clients to finalise the debt agreement paperwork and tweak their budgets before submitting the Debt Agreement proposal to the creditors.  She also negotiates the debt agreement and any variations with creditors on behalf of Debt Cutter clients.

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If you’re facing financial hardship we are here to talk about a solution.  Call us on 1300 887 211 or Book a Free No Obligation Phone Consultation with our friendly team and we can discuss debt management options specially focused on your personal situation.

If you have a debt reduction strategy you’d like to share with us please take the opportunity to connect on our Debt Cutter community forum or comment on this post here or in the G+ post below.