What Is Debt Stacking?
Debt stacking is an extremely fast and efficient way to start paying off every bit of debt you have. In fact, it’s an excellent way to become completely debt-free. The process is simple, but it takes determination, willpower, and consistency.
The basic idea behind debt stacking, is to pay off your highest interest debts first, and add those payments to the next debt payoff schedule. Let’s look at some examples.
The first step is to create a comprehensive household budget, that will allow you to have extra money going towards your debts each month.
The next step is to list every single debt you have that needs to be paid off. List the name of the debt, the total amount remaining to be paid, and the interest rate. You can leave out your mortgage if you’d like, but differently be sure to add any credit cards, store credit, revolving credit accounts, and even car loans.
Once you have every single debt listed, then arrange them with the highest interest rate first. Sort them by interest rates second-highest rate would be second, and the third would be third, and so on.
In your budgeting system, be sure that you have at least the minimum monthly payment for each of the steps listed and worked into the plan. If possible try and budget for more than the minimum payment amount.
The most important place to budget extra money though, is on the debt which is at the top of your list. The goal is to pay this highest interest rate debt off first. So try to do everything you can to incorporate extra payments into this specific debt. If possible, try to pay at least twice the minimum amount or more each and every month. In fact, allocate as much extra money as you possibly can to this one debt.
In the beginning you are single goal will be to pay off that top interest rate debt as fast as possible. So if your budget allows an extra $500 for example, then you would add that extra $500 to the top debt each and every month until it is paid off.
Once that first debt is fully paid, then you would take the money budgeted for that dad and add it to the money budgeted for the second top interest rate debt on your list. This is what stacking means. Since you no longer have the first debt to pay for, the money you were spending on it can now be added towards paying off the second one.
Once your second debt is paid off of course, you would then roll those payments into paying off your third debt. So now the third debt has all of the money that you are paying towards the first, plus all of the money you are paying towards the second, plus the money you have allocated in your budget towards paying for third.
As you can probably imagine, rolling the payment into the next debt over and over again makes the process go faster and faster as time goes on. Using the simple stacking system, you can find yourself a debt-free in a matter of just the few years.
