Do you have a plan in trying to eliminate your debt? Are you tired of making the minimum payments on each bill and never being able to get ahead? I want to go through what debt stack is and how to manage money and eliminate your debt as quickly and realistically as possible. What’s even more exciting is that you can even use the debt stacking formula to help create the retirement you’ve always dreamed of!
What is Debt Stacking?
I have discussed this in one of my previous post buts perhaps this is worth another look. Debt stacking is a simple principle of paying off all debts in a pyramid type formula. Using this formula, you can eliminate your debt 2 to 3 times quicker than you could have imagined.
STEP BY STEP PROCESS:
STEP 1: Make a list of all of your current debt. Rank each item from the lowest amount to the highest.
STEP 2: Establish an emergency fund in a savings account. The lowest amount you should have is $1,000. You just never know if or when you may need it.
STEP 3: Always pay the minimum amount each month that is required on all of your debt until the first one is paid off. Do not try to overpay them all at once.
NOTE: If you typically pay extra on any of your debt each month, apply that extra amount to the first item (of the lowest balance) on your list. (ie if you pay $200 extra each month on item number 3 switch that amount, regardless of interest to the lowest balance.)
STEP 4: Once the lowest debt has been paid, apply that minimum monthly payment from the first debt and use it against the next lowest balance (the second one on your list). This will help speed up the amount of time it will take to pay off the second balance.
STEP 5: Repeat that same process to the next debt or until all have been eliminated. Remember you are not spending any more money and it will accelerate the process.
REMEMBER: For this to work effectively, you must not create any new debt.
Let’s look at a typical example:
TYPE: AMOUNT: REQUIRED MONTHLY INTEREST RATE:
PAYMENT:
Credit Card $7,500 $150 16
Car Loan $10,800 $350 8.5%
Student Loan $14,600 $365 7.25%
Mortgage $139,000 $940 7%
TOTALS $171,900 $1,805 —–
If you only made the minimum required payments:
It would take 32 years to be completely out of debt.
In those 32 years, you would have paid $205,485 in INTEREST for a total of $377,385.
If you apply the Debt Stacking Formula:
It would take just 12 years to pay off that same debt.
In those 12 years, you would have paid just $86,343 in interest for a total of $205,485.
It may seem too good to be true but this is a relatively simple process that works. You are not making any changes to your monthly payments, it’s just a different approach. Every situation is different but debt stacking works for anyone.
How Debt Stacking would help with retirement:
Once all of your debt has been eliminated, take the same total minimum required monthly payment of $1,805 and invest it. Do that every month for the next 20 years. You would have been paying that amount for 20 years anyway. If it is invested at 8% you will have $1,179,533 in 20 years. Nothing in your lifestyle has changed.
In a nutshell, debt stacking will dramatically reduce the amount of time it will take to pay off your debt and it will also reduce the total amount of interest you will pay. It will also help create the nest egg you have always wanted. That sounds pretty great, doesn’t it?
The problem with debt is that you often don’t see results right away. It’s hard to stay focused and keep up hope when those large balances don’t seem to go away until the final few years. The key is to pay as little interest as possible so you will have more of your money in your bank account down the road. I hope this post helped you understand The Debt Stack and showed you a little more about how to manage money.
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