Debt Stacking 101: A Step-by-Step Guide

Debt stacking is a strategy that can help you pay off your debts faster and save money on interest.

You can start by making a list of all your debts, including the balance, interest rate, and minimum payment for each one.

The order in which you pay off your debts matters, and it's best to prioritize the ones with the highest interest rates first.

By doing so, you'll save more money in interest over time and pay off your debts faster.

For example, if you have a credit card with a balance of $2,000 and an interest rate of 20%, you'll pay around $400 in interest over the course of a year, even if you make the minimum payment.

Debt stacking, also known as debt avalanche, is a method of accelerating your debt repayment. It's a straightforward process that involves making a budget, stopping new debt, and prioritizing your debts based on interest rates.

To start, you'll need to make a list of all your monthly payments, including your credit card, student loan, and other debts. This will help you understand your financial situation and identify areas where you can cut back.

You'll also need to stop making new debt, such as using credit cards or taking out personal loans. This will help you focus on paying off your existing debts.

There are two main ways to prioritize your debts: by size or by interest rate. If you prioritize by size, you'll focus on paying off your largest debts first. However, if you prioritize by interest rate, you'll focus on paying off the debts with the highest interest rates first.

Here's an example of how to prioritize your debts by interest rate:

In this example, you would focus on paying off the credit card debt first, followed by the student loan debt, and finally the auto loan debt. This will help you reduce the amount of interest you're paying over time.

Remember, the debt stacking method only works if you don't take on any new debt. If you do, your balances will keep growing, and you may end up paying more in interest over time.

Paying off debt with the debt stacking method can save you a significant amount of money on interest payments.

You can save hundreds or thousands of dollars by focusing on debts with higher interest rates first. This is because you're reducing the amount of total interest charges from your lender.

Debt stacking allows you to set a date for when you'll be debt-free, giving you a clear goal to work towards.

By paying off debt faster, you can track your progress and feel a sense of accomplishment as you get closer to your goal.

Improving your credit scores as you pay down your debt balances is another benefit of debt stacking.

Here are the main benefits of debt stacking:

To create a strategic spending plan, you'll need to take a close look at your income and expenses. Write down your income after tax and all your expenses, including minimum debt payments. This will help you see where your money is going.

Rank your expenses in order of importance to you, and then decide which ones you can cut back on. Be honest with yourself, and ask if it's more important to have a certain expense or be financially stable. You can allocate specific amounts for things like rent, groceries, and eating out, but remember that once you've spent your allocated money, you can't dip into other areas.

Consider setting up a "fun account" for discretionary spending and an "emergencies account" for unexpected expenses. You'll also want to include a realistic amount to pay off debt in your plan, such as $20, $50, $100, or more per week. This is your "stack repayment" amount, and it's essential to commit to it without fail.

Rewarding your progress is a crucial step in sticking to your plan. You can track your target debt to see your progress along the way.

You can celebrate milestones by rewarding yourself, which can be as simple as not spending money or as indulgent as treating yourself to something you've been wanting. A reward doesn't have to cost money, but if it does, it should come from your previously allocated strategic spending plan.

Just like you train yourself to brush your teeth and shower, you can train yourself to manage your money by making it a habit to track your progress and celebrate your successes.

Creating a Strategic Spending Plan is a crucial step in taking control of your finances and achieving your debt-free goals. This involves writing down your income after tax and all the expenses that you have, including minimum payments on all your debt.

To make this process easier, categorize your expenses into needs and wants. Rank them in order of importance to you, and decide whether you'd rather have them or be financially stable. You can allocate amounts for rent, groceries, eating out, buying clothes, and other activities, but remember that once you've spent your allocated money, there's no dipping into other areas.

Having a "fun account" that you can spend on what you like and an "emergencies account" in case your car breaks down, etc., can also be helpful. In your strategic spending plan, include an extra amount you're going to use to pay off debt. This is your "stack repayment", and it's essential to get a realistic number that you can commit to each week without fail.

Here's a rough guide to help you determine how much to allocate for debt repayment:

Remember, this is just a guide, and you should adjust the amount based on your individual circumstances. The key is to find a number that you can commit to each week without fail.

To rank your debts by rate and size, start by making a list of all your debts with their amounts and interest rates. The highest interest rate should be at the top.

For example, if you have a credit card debt at 20% interest, it's likely the most expensive debt to pay off. This is because interest is a powerful weapon that can significantly increase the amount you need to pay back.

The APR on your account statement or dashboard is the most accurate reflection of how costly the debt is. This figure includes both interest charges and fees associated with the account.

Paying off your high-interest debt first is the key to the stack method. By doing so, you'll save money on interest charges and speed up repayment.

For instance, a $10,000 credit card debt at 20% interest can take 9 years and 8 months to pay off, with a total amount of $21,680 including $11,680 in interest.

To create a payment schedule for debt stacking, you'll want to decide how much money you can allocate to the first debt on your list. Try using a simple debt payoff calculator to determine when the account will hit a $0 balance.

The Consumer Financial Protection Bureau (CFPB) reminds you that you have the right to repay your student loans as fast as you can. This is especially important if you have high-interest loans.

To make a payment plan, you'll need to organize and understand your debts. Start by listing all your monthly payments, from your electricity and phone bills to your credit card and student loan payments. Compare your debts to your income to determine how much money you have left over at the end of the month.

You can use the debt stacking method to prioritize your debts based on interest rate. Make a list with the largest interest rates first, and then allocate your extra cash to the debt with the highest interest rate.

Consolidation and refinancing can also be useful in managing your debts. You can ask about lower interest rates for your loans, and even consider refinancing your student loans to get a lower interest rate.

Here's an example of how you can create a repayment schedule:

By following these steps, you can create a repayment schedule that helps you pay off your debts efficiently and effectively.

Debt stacking can help borrowers pay off debt, but it's not the only path available. The average American has more than $104,215 in debt.

You may want to consider two alternatives: the debt snowball method and a personal line of credit. The debt snowball method involves paying off your smallest balances first, which can provide a quick win and motivate you to keep going. However, this method could end up costing you more money in the long run if you have large balances with high interest rates.

A personal line of credit can help you pay down credit debt quickly and efficiently while saving interest along the way.

If you're considering debt stacking to pay off your debts, there are other options worth exploring. The debt snowball method is one alternative that involves paying off your smallest balances first, which can provide a quick win and motivate you to keep going.

The average American has more than $104,215 in debt, so it's essential to find a strategy that works for you. The debt snowball method may not be the most efficient in the long run, as it doesn't take interest rates into account.

A personal line of credit can also be a helpful option for paying off debt quickly and efficiently. This can save you money on interest and help you pay down your credit debt faster.

Here are some key differences between debt stacking and the debt snowball method:

Ultimately, the best approach for you will depend on your individual financial situation. It's essential to have a plan in place, remain patient, and stay the course to achieve financial freedom.

Navigating debt options can get confusing, but a nonprofit credit counselor can help.

Credit counselors are there to answer all of your financial questions.

They can guide you on methods like debt stacking, which is one of a handful of approaches to tackling debt.

You'll get free or low-cost professional guidance, tools, tips, and advice for addressing all of your financial challenges.

This can include help with becoming debt-free, which is the quickest way to achieve financial stability.