Debt Stacking - How To Manage Money

Are you currently trying to reduce your debt? Does it seem that you are making the minimum contribution on each bill and don't seem to make any progress?I want to go through what debt stack is and how to manage money and get rid your debt as fast and reasonably as possible. Something that is more exciting is that you can even use the debt stacking formula to help create the retirement you have always dreamed of!

What is Debt Stacking?

I have talked about this in a previous post but perhaps this may be worth another look. Debt stacking is an easy principle of eliminating all debts in a triangle type formula. It is a proven theory and it can be easy plus you can eliminate your debt two or three times faster then you may have thought possible.

HERE'S WHAT TO DO:

STEP 1: Make a list of all of your current debt. Put each amount in order from the least amount to the largest.

STEP 2: Establish an emergency fund in a savings account. Never have a balance less than $1,000. You just never know if or when you may need it.

STEP 3: Be sure to make the minimum payments every single month that is required on all of your debt until the first one is paid off.

KEEP IN MIND: If you usually pay extra on some of your debt each month, apply that extra amount to 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: When you have paid off the lowest outstanding balance, use that money 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. Keep in mind 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.

Here is 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. No changes are being made to your monthly payments, just a different approach. Each persons situation is unique but debt stacking can work for anyone.
How Debt Stacking would help with retirement:

When all of your debt has been eliminated, take the same total minimum required monthly payment of $1,805 and invest it. Do that each month for the next 20 years. You would have been paying that amount for another 20 years anyway. If its 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 AND it will 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 remained focused and keep up hope when those large balances don't seem to disappear until the final few years. The key is to pay as little interest as you can so you will have more of your money in your bank account for the future. I hope this post helped you understand debt stack and taught you a little more about how to manage money.

Until next time,

Brandon

You can pay off your debts and save money at the same time! Say goodbye to your boss forever! A blog that will show you the secrets of the wealthy: http://www.howtomanagemoneytips.com

Get a free budget sheet, net worth calculator, tools and more: http://www.howtomanagemoneytips.com/ebook2.html