What Is Debt Stacking?

A Guide to Paying Off Debt Faster

Debt can feel overwhelming, but with the right strategy, you can take control of your finances and work towards becoming debt-free. One such strategy is debt stacking, a methodical approach to paying down your debts while saving money on interest. If you’re looking for a structured and effective way to manage your debt, debt stacking might be the solution you need. In this article, we’ll explore what debt stacking is, how it works, and how you can use it to regain financial freedom.

What Is Debt Stacking?

Debt stacking, also known as the highest interest rate method, is a debt repayment strategy that prioritizes paying off debts with the highest interest rates first while maintaining minimum payments on all other debts. The idea is to reduce the total interest paid over time, helping you save money and get out of debt faster.

Unlike other strategies like the debt snowball method, which focuses on paying off the smallest debts first for psychological wins, debt stacking is rooted in financial optimization. It’s ideal for individuals who want to minimize the overall cost of their debt repayment.

How Debt Stacking Works

Here’s a step-by-step explanation of how to implement debt stacking:

1. List All Your Debts

Start by creating a comprehensive list of all your debts. Include:

• The outstanding balance
• The interest rate
• The minimum monthly payment

For example:

• Credit Card A: $5,000 balance, 20% interest, $150 minimum payment
• Credit Card B: $3,000 balance, 15% interest, $100 minimum payment
• Personal Loan: $10,000 balance, 10% interest, $250 minimum payment

2. Rank Debts by Interest Rate

Organize your debts in descending order of interest rate. The debt with the highest interest rate (Credit Card A in the example above) takes priority.

3. Allocate Extra Funds to the Highest Interest Debt

Each month, continue making the minimum payments on all your debts. Any extra money you can allocate to debt repayment should go towards the debt with the highest interest rate.

For instance, if you have an additional $200 to put toward debt repayment, it should be added to the payment for Credit Card A.

4. Pay Off the Debt with the Highest Interest Rate

Once you’ve paid off the debt with the highest interest rate, move on to the next debt on the list. Add the amount you were paying on the first debt (including the extra funds) to the payment for the next highest-interest debt.

Using the example:

• When Credit Card A is paid off, you’ll allocate its $150 minimum payment, plus the extra $200, to Credit Card B.

5. Repeat Until All Debts Are Paid

Continue this process until you’ve eliminated all your debts. Each time you pay off a debt, the amount you can put toward the next one grows, accelerating your progress.

The Benefits of Debt Stacking

Debt stacking offers several advantages:

1. Minimizes Interest Costs

By tackling the highest-interest debts first, you reduce the total amount of interest you’ll pay over the life of your debts.

2. Faster Debt Repayment

Because you’re saving money on interest, more of your payments go toward the principal balance, helping you pay off your debts faster.

3. Clear Financial Focus

Debt stacking provides a logical and structured plan, making it easier to stay motivated and track your progress.

4. Improved Financial Habits

The discipline required to stick to debt stacking often leads to better budgeting and spending habits.

Debt Stacking vs. Debt Snowball: Which Is Better?

While debt stacking is about optimizing interest costs, the debt snowball method emphasizes psychological motivation. In the debt snowball method, you pay off the smallest debt first, regardless of the interest rate. This creates a sense of achievement early on, which can motivate you to continue.

Here’s a quick comparison:

The best method depends on your personality and financial goals. If you’re motivated by numbers and savings, go with debt stacking. If you need small wins to stay on track, consider the debt snowball approach.

How to Get Started with Debt Stacking

If debt stacking sounds like the right strategy for you, here are some tips to get started:

1. Create a Budget

Assess your income and expenses to determine how much extra money you can allocate toward debt repayment.

2. Automate Payments

Set up automatic payments to ensure you never miss a due date and avoid late fees.

3. Cut Unnecessary Expenses

Look for ways to reduce discretionary spending and funnel those savings into your debt repayment plan.

4. Track Your Progress

Use a spreadsheet, financial app, or a simple notebook to monitor your debt balances and progress over time.

5. Stay Disciplined

It can be tempting to splurge or divert funds elsewhere, but staying committed to the plan will lead to faster results.

Is Debt Stacking Right for You?

Debt stacking works best for people who:

• Have multiple debts with varying interest rates.
• Want to save money on interest.
• Are financially disciplined and can stick to a long-term plan.

If you’re ready to take control of your debt and optimize your repayment strategy, debt stacking can be a powerful tool to help you achieve financial freedom.

Debt stacking is an effective and financially sound method to pay off debt. By prioritizing high-interest debts, you can save money, get out of debt faster, and reduce financial stress. While it requires discipline and focus, the long-term benefits are well worth the effort.

Whether you’re dealing with credit card balances, personal loans, or other forms of debt, a clear strategy like debt stacking can provide a path toward financial independence. Start today, and take the first step toward a debt-free future!

Reach out to Lauren today for a free consultation on how you can become debt free with this method!