Tag Archives: STEP

Debt Stacking How to Manage Money

Do you have a plan in trying to eliminate your debt? Are you tired of making the minimum payments on each outstanding balance and never being able to make any progress?I want to go through what debt stack is and how to manage money and get rid your debt as fast and reasonably as possible. Something that is more interesting is you can follow the debt stacking formula to help create the retirement you’ve always hoped for!

What is Debt Stacking?

I have discussed this in one of my previous post but I think this is worth another look. Debt stacking is an easy principle of eliminating all debts in a triangle type formula. It is a proven theory and it can be 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. Put each amount in order from the lowest amount to the largest.

STEP 2: Set up an emergency fund in a savings account. The lowest amount you should have is $1,000. You just never know if or when you may need it.

STEP 3: Always make the minimum payments every single month that is required on all of your debt until the first one is paid off.

NOTE: If you usually pay extra on one or more of your balances 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: Once the lowest debt has been paid, use that money against the next lowest balance (the second one) on your 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. Remember 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. You are not making any changes to your monthly payments, just a different approach. Every situation is different but debt stacking can work for anyone.
How Debt Stacking would help with retirement:

Once all of your debt has been eliminated, take the same total minimum required monthly payment of $1,805 and invest it. Do that each 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.

Basically 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 stay focused and maintain hope when those large balances don’t seem to disappear until the last few years. The key is to pay as little interest as possible 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,

False Sense of Financial Security

You are currently living the ‘American Dream’. Right now you are blissfully married, you have two kids, a dog, the nice home with a white picket fence, you drive an SUV and a station wagon and you are in debt. Your story is just like millions of other people out there. Okay, so your story isn’t exactly as I just described but its pretty similar. In fact the debt part is probably the only absolute truth. You are able to make all of your minimum monthly bills and are making ends meet – or so it seems. You’ve been drawn into the false sense of financial security and assume that you know how to manage money. The reality is you may be in too much debt. I’ve created a list of ten warning signs indicating that you might be in over your head.

  1. You have little to no savings
  2. You are only able to make the minimum payment on your credit cards and other bills
  3. You have been denied credit
  4. You use cash advances from your credit cards to pay other bills like heat and hydro
  5. Once in a while you’re late with your bill payments
  6. You keep buying things with your credit card adding to the balance
  7. You don’t even know how far in debt you are
  8. Your bank accounts are overdrawn and once in a while you bounce checks
  9. You have one or more credit cards that are close to the limit or are maxed out
  10. You have been secretive to family and friends about your debt and over spending

Does one or all of these statements sound like you? Even if just one of those is true you might be in some sort of financial trouble and may need to learn how to manage money all over again. The good part is you can. The bad part is you need to start taking control of your finances ASAP. The longer you wait, the worse the problem will get. Finances are something that can’t be ignored or forgotten about.

STEP 1: Now is the time to create a check list and go through it. Sift through these ten things and find out the parts that correspond with your life.

STEP 2: Find a way to correct those problems. You have no savings? Start creating your emergency fund. Add $25 a week or any amount that is possible to increase that balance to $1000. You keep adding to your credit card balance? Start buying things with cash and start making larger payments to your credit card. The list goes on and on but you have to fix those problems.

STEP 3: Set goals and start making them into reality. Next week isn’t the best time to begin making goals. Start today – better yet, start right now. Don’t set your goals too high, create financial goals that are able to achieve like cutting your hydro bill by 5% or 10% or save some cash by quitting smoking. Small steps are key to goal setting and learning how to manage money.

Being lured into a false sense of financial security is easy if you don’t know the signs of serious financial problems. If you have gone through this list and have found any matches it might be time to start fixing those problems before your security becomes a huge issue. Understanding how to manage money can be simple and everyone is able to make it happen.