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Last Updated on June 1, 2020

How to Pay off Debt Fast Using the Stack Method (A Step-By-Step Guide)

How to Pay off Debt Fast Using the Stack Method (A Step-By-Step Guide)

Whether it’s consumer debt on credit cards, student loans[1], or a mortgage, most people find themselves weighed down by debt at some point in their lives. This can keep us working jobs we hate just to pay the bills and keep our heads above water. By learning how to pay off debt fast, you can release this burden and remove some of the stress from your life.

The Stack Method is one way to do this. Once you understand it, you too can learn how to pay off debt fast.

What Is the Stack Method?

The Stack Method, often referred to as “debt stacking,” requires making a list of all your sources of debt, starting with the debts that incur the highest interest. Then, you make the minimum payments for each source of debt, but when any extra money comes your way, you throw it at the debt at the top of the list. This way, you eliminate the debts with the most interest first, dropping extra costs to a manageable level in a fairly short amount of time.

To get started with the Stack Method, go through these steps and overcome those mountains of debt today.

1. Stop Creating New Debt

Most people do not receive training in handling money and how to live within their means. If you’re in debt, then you’re probably one of these people, and it’s time to bite the reality bullet.

It’s going to be impossible to get out of debt unless you retrain your financial habits right now.

You must make a stand against all the marketers trying to take your hard earned money or offering easy finance. You don’t need more stuff to make you happy. What you need is financial peace of mind.

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So cut up your credit cards or freeze them. I mean this literally. Put them in a container of water and stash them in your freezer. Then, when there’s an opportunity to spend, you have time to thaw out (you and the credit cards) and really decide if you need that purchase.

2. Rank Your Debt by Interest Rate

Make a list of all your debt with amounts and the interest rate. The highest interest rate should be at the top as this is what you’ll pay off first.

Paying off your high interest debt is the key to the Stack Method.

Interest is a powerful weapon, and right now the bank or other financial institutions are using it against you. Interest significantly increases the amount you need to pay back, and often we’re completely unaware of how much that is.

For example, if you have a $10,000 credit card debt at 20% interest where you pay a minimum payment of $200 a month, you will end up taking 9 years and 8 months to pay off the actual amount of $21,680 including $11,680 in interest!

3. Lower Your Interest Rates

You can often lower your credit card interest rates by doing a balance transfer. This means moving your credit card to another bank, where they will lower the interest rate to get your business[2].

Shop around and try to get the lowest interest rate for the longest duration (preferably until it’s paid off completely). Just make sure you’re reading the terms and conditions carefully so you don’t get stung by the new bank in other ways.

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Once you’ve done this, you can order your list of debt again if interest rates have shifted.

4. Create a Strategic Spending Plan

This is where we improve your financial control from Step 1. Take a piece of paper and write down your income after tax and all the expenses that you have. This will include the minimum payments on all your debt.

Look at your expenses, and then rank them in order of importance to you. Look at the items on the bottom of your list and decide whether you’d rather have them or be financially stable. The objective is to create a spending  plan where your expenses are lower than your income.

You also decide how much you are willing to spend on each area of your life. You can allocate amounts for rent, groceries, eating out, buying clothes, and other activities. However, realize that once you’ve spent your allocated money, there’s no dipping into other areas[3].

It also helps to have a “Fun Account” that you can spend on what you like, and an “Emergencies Account” in case your car breaks down or other unfortunate incidents come up.

You also want to include the extra amount you’re going to use to pay off debt in your spending plan.

Can you afford $20 a week? $50? $100? $200 or more? It’s important that you get a realistic number that you can commit to each week without fail, and this is your Stack Repayment.

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5. Create a Payment Schedule

The first part of the Stack Method is to cover the minimum payment on every single debt you have. Any time you miss a payment, you incur fees, and these add up quickly. This also includes making the minimum payment on the debt with the highest interest rate.

Then for the debt with the highest interest rate (your Target Debt), you’re going to add the Stack Repayment from your strategic spending plan. You apply this Stack Repayment and the minimum payment until that debt is paid off in full.

As your official minimum payment decreases, you add that extra amount to your Stack Repayment. So, as your minimum repayment drops, your Stack Repayment increases equally. This will compound how fast you pay off the Target Debt by adding even more to the payments you’re making.

6. Reward Your Progress

You want to track your Target Debt so you can see your progress along the way. You can also decide on milestones that you’re going to celebrate and reward yourself for.

A reward doesn’t have to cost money, but if it does then it comes from your previously allocated spending plan.

This is an important step as it will keep your motivation going when you feel your willpower fading.

Just like you’ve trained yourself to brush your teeth and shower, you can train yourself to manage your money. Feel great that you’re now entering the 10-20% of people who are actually responsible with money.

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7. Compound Your Results

Once you pay off your Target Debt, have a huge celebration and congratulate yourself. Then, you move the Stack Repayment (which includes the previous minimum payment now) to the next debt with the highest interest rate.

This becomes the new Target Debt, and you are using your Stack Repayment amount plus the minimum payment for the new debt.

This is why the Stack Method is so powerful. As you decrease a debt, you actually increase your Stack Repayment amount. This means the second debt will get paid off even faster, the third even faster than that, and so on and so on until you are completely debt free.

8. Be Kind to Yourself

During this process, your resolve is going to be tested multiple times. Maybe you’ll have an emergency like your car breaking down or the need to travel for a sick relative. The important thing is to not throw up your hands in despair and slipping back into your old habits.

Life will test your commitment to your new responsible money attitude, and it’s up to you how you respond. When things go wrong (and I guarantee they will), you need to shrug it off and get back on track.

Show compassion when you accidentally go over your target spending amount and decide to do better next week.

The Bottom Line

The Stack Method is a powerful tool, but it’s up to you whether you use it effectively. If you really want results, then bookmark this article immediately and start working through the steps.

It’s only by the decision you make right now that you will enjoy a debt-free future and live a financially responsible life.

More Tips on How to Pay off Debt Fast

Featured photo credit: NeONBRAND via unsplash.com

Reference

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Craig Dewe

Craig founded Lifestyle Outlaws, with the belief that everyone should have the time, money and health to do what they want with life.

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Published on January 8, 2021

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

Ever wondered whether your credit card debt is the reason you’re in a bad financial situation? You can’t enjoy any fun activities because a good chunk of your money goes toward debt payment. Heck, you’re even behind on some of your monthly bills.

The effects of clumsy debt management are too many to list here. This guide is going to help you discover how to pay off credit card debt fast and start chasing your financial goals.

Debt problems are the last thing anyone wants to encounter. But things can get out of hand when all the “little debts” you take accumulate in interests.

What if you knew some simple and proven ways to be debt-free quickly? Implementing them would mean better financial health for you. It becomes possible to free up cash for your “wants.” These include taking a trip or buying something you’ve always desired. All that while paying your bills on time!

Let’s not wait any longer. Here are 7 powerful tips for paying off credit card debt fast:

1. Pay More Than the Minimum Credit Card Payments

Many people only pay the monthly minimum on their credit cards. Truly, that’s the right amount for staying on good terms with your credit card company. But you need a different approach if you’re looking to achieve financial independence within a short time.[1]

Most of your payments go toward interest costs when you only pay the minimum amount. A substantial sum of your balance remains standing. As a result, it becomes more expensive to eliminate your debts.

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You don’t want to wait more than 10 years to get rid of debt while it’s possible to do it sooner. All you have to do is double that $100 minimum payment to $200 or go higher.

The good thing is that minimum credit card payments are affordable in most cases. By paying a higher amount, you reduce your interest costs, lessen your borrowing period, and boost your credit score.

2. Start With High-Interest Credit Card Debt

If you have more than one credit card debt, prioritize putting the extra money toward the ones with the highest interests. This debt pay-off strategy, known as the debt avalanche method, is essential for being debt-free quickly.[2]

First, you need to list down all the credit card debts you have in the order of their interest rates. Next, you choose the one with the highest interest and pay a significant amount toward it each month. It can be an amount twice or even thrice larger than the minimum payment.

At the same time, you make monthly minimum payments on the other debts. Their interest charges won’t be as costly as that of the first debt on your list. You only move on to the next high-interest debt after the first one is gone. Remember that your focus is on the interest rates and not the balances.

3. Revisit Your Budget

Budgeting is useful for tracking your financial moves. Once you create a budget, some tweaks along the way can make it work for you better. One situation that requires you to revisit your budget is when you’re struggling with debts. It might hurt a bit to slash some expenses. But you also don’t want to miss out on achieving financial freedom in the long run.

You can reduce some variable expenses to free up more cash for credit card debt payments. They’re the ones that change from time to time. Some examples are groceries, fuel, and clothing.

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Other opportunities for cutting down your spending lie in non-essential expenses. Instead of dining out all the time, you can cook at home more to save money. You can also share some subscriptions with friends and pay a fraction of the cost.

If you’re determined enough, you can eliminate all your unnecessary expenses and focus on paying off your credit card debt first.

4. Avoid Using Your Credit Cards

Do you want to know how to pay off credit card debt with a low income? One simple way is to stop using them. Having your credit cards everywhere you go means that you’ll be more tempted to buy unnecessary stuff. In this case, you spend money that you don’t really own and get deeper into debt.

The quickest fix to stop the debt build-up is spending with cash. You’ll be more aware of everything you can afford at any particular time. If you decide to keep one or two cards to ease the transition, always make wise choices. For instance, only use them when experiencing financial difficulties.

It’s best to categorize your fun activities under “discretionary spending” in your budget. This way, you won’t need more debt to kill your boredom. By halting your credit debt from accumulating, it’s easy to pay down what you already owe and be happy with the progress.

5. Start a Side Hustle to Boost Your Income

You’re probably turning away a lot of money by not monetizing your skills. Everyone has something that they’re good at doing. And you can use that to generate extra income for attacking your credit card debt.

If you look around your neighborhood, you can find several side hustle opportunities. It can be pet sitting, tutoring, or lawn mowing. You can start an online business by offering services such as digital marketing, content creation, and web development. Such skills go in high demand on freelance sites and job boards.

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Finding clients on social media is also a good strategy to utilize your skills and make more money. Facebook groups, Quora Spaces, and subreddits are some places to look for side jobs. You only have to join a niche-specific platform, share your services, and respond to any opportunities.

It’s possible to learn a skill, practice it, and earn from it. Use the free resources online or purchase some e-courses to get started.

6. Sell Your Used Items for Extra Cash

Starting a side hustle isn’t the only way to generate extra money. You can turn unwanted items into cash for paying off credit card debt. Whether it’s an old TV, book, or furniture, there is always someone itching to buy your used stuff.

A garage sale, as much as it’s old-fashioned, is perfect for getting your neighbors and passers-by to buy from you. You keep all the money because there are no business permits or taxes involved. While you may not make much cash, it’s better than leaving your stuff to go defunct in your storage.

Other than that, you can sell your used stuff on online marketplaces. Facebook groups are great places to start if you want quick approvals and hence sales. You only have to ensure that your listing follows Facebook’s commerce policies.

When selling any pre-owned items online, ensure they’re in good shape to avoid problems with your buyers.

7. Know When to Seek Help With Your Debt

Asking for help with your credit card debt can be challenging to do. But letting it drown you is a road you don’t want to take. While you may feel embarrassed at first, it’s the best way to get back on track when you run out of options.

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There are tons of non-profit credit counseling organizations that can offer you free guidance on how to escape the debt trap. An example is The National Foundation for Credit Counseling. They simply review your finances and help you determine the source of your financial problems. After that, they match you with an actionable debt management solution.[3]

In extreme cases, the debt solution can be:

  • Debt relief – where your debt is partially or wholly forgiven
  • Debt consolidation – taking out one loan to repay others
  • Debt settlement – the creditor forgives a significant portion of your debt
  • Bankruptcy – legal process for seeking relief from some or all your debts

It’s necessary to carefully weigh your options before deciding on the way to go. Find out how it might affect your credit score and any other risks.

Wrapping It Up

Debt is a major setback when you’re trying to prosper in life. Paying off credit card debt is essential if you want to reach your financial goals. That means having more free income, a good credit card score, and even a chance to retire early. You become more productive each day because of the peace in your mind.

So, you now have some tips on how to pay off credit fast. Go ahead and get rid of that good life progress killer!

More Tips on How to Pay Off Debt

Featured photo credit: rupixen.com via unsplash.com

Reference

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