Friday, May 8th, 2009 at 7:42 pm

Please read the disclaimer before you continue.

Last post we looked at an introduction to debt stacking and how to pay off debts faster. To recall, the first 5 steps of debt stacking is to basically organize you debts into a list. In your list you would include things like: interest rate, how long to pay off each debt, minimum payment and actual payment. Remember to organize your debts from lowest balance to highest balance. The second part of this series will cover the final steps of debt stacking and how you can use it to get outof debt sooner and save thousands in interest.

Here are the final steps to debt stacking and how to pay off debts faster:

Step 6:

I know this might sound weird but the first thing you want to do is pay the minimum balance on all your debts. For example: if you have a department store card and the minimum payment is $100 per month and you are paying $150, take that extra $50 and put it aside. Do this with all your debts except for the one with the lowest balance.

Example:

Payment

Minimum

Extra Cash

Lowest balance debt

$100

$100

0

Department store card

$150

$100

$50

Line of credit

$200

$125

$75

Credit card

$150

$50

$100

Credit card #2

$75

$50

$25

Total

$200

Step 7:

Take the extra cash from step 6 and apply it to your lowest balance debt. For example:

Old Payment

New Payment

Lowest balance debt

$100

$300

Step 8:

Once your lowest debt is paid off take the entire payment from the first debt and apply it to the next debt on the list (the debt with the second highest balance). For example

Old Payment

New Payment

2nd lowest balance debt

$100

$400

Step 9:

Repeat step 8 until all debts are paid. Remember, each time you clear the lowest balance debt, take that payment and apply it to the next lowest balance debt. Your payment amount should increase each time you clear a debt.

Step 10:

When all of your debts are paid, take half of the payment amount and invest it for retirement. Take the other half and apply it to your mortgage or use it to increase your quality of life.

Debt stacking is a powerful tool you can use to pay off debts faster. If you can follow these final steps you will be well on your way to getting rid of your debts in no time. The final part of this series will cover a full example of debt stacking including all calculations and comparisons that you can use as a guideline.