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Debt Stacking - How To Manage Money
What is Debt Stacking? I have talked about this in a previous post but I think this may be worth one more discussion. Debt stacking is an easy principle of eliminating all debts in a triangle type formula. It is a proven theory and it is actually really easy plus you can get rid of your debt two or three times more quickly then you may have thought possible. HERE'S WHAT TO DO: STEP 1: Create a list of all of your current debt. Rank each item from the least amount to the highest. STEP 2: Set up an emergency fund in a savings account. Never have a balance less than $1,000. You may need it any at time, so it's wise to have. STEP 3: Always pay the minimum amount each month that is required on all of your debt until the first one is paid off. KEEP IN MIND: If you typically pay extra on some of your debt each month, apply that extra amount to first item (of the lowest balance) on your list. (for example 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, apply that minimum monthly payment from the first debt and use it against the next lowest balance (the second one) on the 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. 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 an easy process that works. No changes are being made to your monthly payments, just a different approach. Each persons situation is unique but debt stacking works for anyone. How Debt Stacking would help with retirement: Once all of your debt is gone, 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 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? When it comes to paying off debt you don't always see results. It's hard to remained focused and maintain hope when those large balances don't seem to disappear until the last few years. What you need to do is pay as little interest as you can so you will have more of your money in your bank account down the road. I hope this post helped you understand debt stack and taught you a little more about how to manage money. Until next time, Brandon Article Directory: http://www.articledashboard.com 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: www.howtomanagemoneytips.com Get a free budget sheet, net worth calculator, tools and more: www.howtomanagemoneytips.com/ebook.html |
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