The Debt Stack Method is one of several methods you can employ in order to pay off debt.
This ‘How to pay off debt’ series is outlining the most common methods that have been proven techniques to assist in paying down debt as quickly as possible.
The other methods of paying down debt in this series consist of:
Which method suits you really depends on your personal preference. I encourage you to read each post to identify which method is likely to suit you and give it a concerted effort.
Using the Debt Stack Method for paying off debt
The Debt Stack Method, or debt stacking as it is often called is a simple and straight-forward technique for approaching debt repayment, and is, in my opinion, the most logical approach.
The Debt Stack Method is also commonly referred to as The Debt Avalanche.
The biggest benefit of The Debt Stack Method is that it saves you the most money on interest, however it requires diligence and commitment from you because, unlike The Debt Snowball, you aren’t going to be spurred on by immediate results of kicking individuals debts out the door more quickly, there are pros and cons to each method, which we’ll cover shortly.
How The Debt Stack Method works
Firstly you make a list of all your debt and you order the debts with the highest interest paying debts first. For example, you may have the following debts
- Mastercard – $2,500 – 19.9% Interest
- Visa – $7,500 – 14.9% Interest
- Car Loan – $4,000 – 8% Interest
- Student Loan – $10,000 – 5% Interest
Once you’ve done this you arrange to pay the minimum payment on each debt every month.
With any surplus funds you have you’re going to apply those funds to the debt at the top of the list. That’s going to be the one that charges you the most interest each month, in our example it’s the dastardly Mastercard.
You’re going attack that debt hard!
Once you’ve wiped out that Mastercard debt you’ll take the monthly surplus funds and the minimum payment from the Mastercard and go all in on knocking that Visa card off the list.
The Visa in this particular example is quite hefty in comparison to the car loan and the downside to this method is that you may get frustrated because you won’t feel like you are knocking debts off your list as fast as you like.
How to keep focussed with debt stacking
My view on how to combat this downside is to focus on how much interest you are being charged on your credit card bill each month.
I had a number of debts last year and I decided I would conquer my credit card first. I was being charged 19.9%. My interest each month was close to $90 per month when I began.
With some concerted effort, by the next statement I was charged around $35.
That $55 was saved by working hard to pay down the balance and could therefore be better put to work on paying the debt down even faster!
Whilst it wasn’t “money in my pocket” it was also not “money out of my pocket”, so to speak.
If you are looking for motivation with this technique you need to consider these savings and realise that it is these mini goals to keep you going.
That said, it’s always a great feeling to be able to say goodbye to an individual debt and know that you are done with it for good. If it motivates you more to knock complete debts off the list fast, to give you the motivation to keep going, then the debt snowball is probably more up your ally.
Whilst I took The Debt Stack Method approach to my debt at that time I must admit that I felt enthused as I saw the debt being paid down. I’d already made significant changes to my life in order to pay it down as fast as I could. I set up a budget and decided to live frugally for several months.
However, once I saw the debt reducing so fast, and realised the ‘savings’ I was making on interest payments by paying it down, I worked even harder to pay it off faster. Within 6 weeks I paid off $5000, that was no mean feat for me!
If you check out my article on the benefits of goal setting you’ll see this reaction has been proven by neuroscience to be a consequence of how our brains are wired to reward and make us feel good as we approach a goal. With this in mind you should construct a debt repayment plan devised to harness that hard wiring in order to ensure maximum chances of success.
The Debt Stack Method could be frustrating for some of you. If you find yourself losing hope or getting frustrated then you should look for the wins within the journey rather than the completion of the goal at hand. I did this by looking at the reduced interest and how much I had “saved”.
If that still doesn’t help perhaps consider trying The Debt Snowball which would undoubtedly be more better suited to your personality type.
Ultimately you need to find the best method that works for you and don’t give up if the first method you try doesn’t suit you.
Have you tried the stack method before? How did you get on with it and which method would you prefer and why? Let me know in the comments, I’m curious to see if there’s a general consensus that one method is best.