The Stack Method: A Smart Yet Simple Way to Pay Off Your Bills Faster

books-441866_640Most everyone has their own personal way to pay off debt. But, did you know that the stack method can help you pay off your debts faster? Here’s what savvy people know that you don’t.

Start With Your Debts

Stop creating new debts. This is essential. One of the reasons people fail is that they keep taking on debts and never stop. Not only is it impossible to pay off old debts when you do this, you can’t start saving money which is the underlying goal of paying off your debts.

According to this Carefree Dental article, you need to stop creating new debts and the easiest way to do this is to go cold turkey. Stop using your credit cards and put a moratorium on spending. That is, commit to not spending any money outside of your normal and ordinary monthly expenses.

Take a stand against all the marketers trying to take your hard earned money and offering you easy financing for things. It’s tempting, and it might be hard to change old habits, but you must. You don’t need more stuff to make you happy. If you’re deeply in debt, you already have a lot of stuff. You’re not happy. You’re so unhappy that you’re trying anything to get out of debt.

Rank Your Debts By Interest Rate

Most people rank their debts by the monthly payment. Look, this is how you got into financial trouble. What you need to do instead is to sort by highest interest rate. By focusing on the monthly payment, or the smallest debt balance, you’re ignoring the real cost of the debt, which is the interest rate.

If you have a $10,000 credit card debt, and the interest is 20% where you pay minimum payments of $200, you’ll pay it off in 9 years, 8 months. This results in $11,680 in interest.

Focusing on this first, you’ll reduce this interest significantly.

Lower Your Rates

You can also lower your interest rates by asking to have the interest reduced on your debts. If you’ve made consistent payments on your credit card, for example, you can often have your rate reduced significantly. If that’s not possible, do a balance transfer.

This means you move your balance on your credit card to another bank and they’ll lower the interest for you. This is mostly to get your business. Shop around. Try to get the lowest interest rate for the longest duration you can. Make sure you read the TOS for the new card carefully so you don’t get charged fees that you weren’t expecting.

Create A Spending Plan

Everyone needs a spending plan. Take a piece of paper and write down all income and expenses. Now, rank them in order of importance. Look at everything on the bottom of your list and cut out anything that you truly cannot afford. The more you can cut, the better. This money can then be used to pay down your debt.

You can also decide how much you’re willing to cut from other areas of your life. Allocate amounts for things you cannot reduce, like rent and utilities. But, make strategic cuts for things like groceries and clothes, eating out, and other activities. Decide on a hobby that you’ll spend money on and set a strict limit.

You need to have fun, and you don’t want to see your budget as something that eliminates all sources of fun or else you won’t stick to it.

In your new budget, set a new amount you’ll use to pay down debt. It doesn’t matter if it’s only $20 per week or $50. Choose an amount and write it into your budget.

Creating A Repayment Plan

When you start out, it’s easy to forget that the whole goal is to pay down debts. Most people get so fixated on the process and the budgeting, that they put the debt payoff in the back of their minds. It just seems to happen so slowly that they can’t see the end.

A repayment plan helps you see that end. You can set milestones for yourself, and keep track of the debts you’ve paid down. This helps you better understand where you are in the process. It also helps keep you motivated because you can see the results as they are happening.

When the highest interest debt is paid off, you take the minimum payment from the old debt, plus the additional amount you were paying toward that debt, and push it onto the next highest interest debt. Once that debt is paid off, move on to the next highest interest debt. Keep repeating this process until all your debts are paid off.

As your minimum payment decreases on each debt (assuming they’re credit cards), you stack an extra amount onto the monthly payment. So, as your minimum repayment drops, your stack increases very quickly. This will compound your repayments.

Danielle Atkins is a Mom who enjoys family time with her 2 kids and husband, writing and technology, most notably playing with her new 3D Printer! She writes about family matters and personal finance as well as blogs about her printing experiments!

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