Pay off Debts Faster: Debt Stacking Part 3 of 3

Please read the disclaimer before you continue

In the second part of this series we looked at the final steps to debt stacking and how to pay off debts faster. We looked at how to find extra money to pay off debts faster. We also looked at which debts to apply extra cash flow to and how save thousands in interest. In the last final part of this series we will cover a full example with all the calculations. You will be able to use this example as a reference when working on your own plan. (All numbers are approximate)

A full example of debt stacking:

Bob is a 38 year old city worker making $45, 000/year. He has a wife and 2 children. He has stopped creating new debts (step 1) but is having a hard time getting ahead with the other debts. He puts a little extra onto each debt every month but still can’t seem to get ahead. The following is a list of his debts: (All debts assume a minimum payment of 2.5%)

	Total Debt	Min Payment	Actual Payment	Interest Rate	Pay off Date	Tot Interest Paid
Credit card #1	$755	$19	$25	18%	3.4 yrs	$258
Sears card	$1, 325	$33	$50	28%	3.5 yrs	$763
Line of credit #1	$4, 258	$106	$150	5%	2.5 yrs	$283
Credit card #2	$8, 961	$224	$250	18%	4.3 yrs	$3, 993
Line of Credit #2	$32, 582	$814	$900	5%	3.3 yrs	$2, 810
Mortgage	$295, 483	$1, 718	$1, 718	5%	25 yrs	$220, 078
Total	$343, 364	$2, 914	$3, 070	N/A	N/A	$228, 185

 

Now Bob is going to pay the minimum on all his debts and apply the savings to credit card #1:

Monthly savings = Minimum payment – Actual payment = $156

Added payment = Minimum payment + Savings = $175

This is what Bob’s first debt payment will now look like:

	Total Debt	Min Payment	Actual Payment	Interest Rate	Pay off Date	Tot Interest Paid
Credit card #1	$755	$19	$156	18%	5 mths	$34

You can see that he has paid off his first debt off 2.8 years sooner and saved $223.26 in interest.
Now Bob will take his full payment from credit card #1 and apply it to his second debt which is His sears card. Remember his total debt will change because he is still paying the minimum. His new payment will look like this:

	Total Debt	Min Payment	Actual Payment	Interest Rate	Pay off Date	Tot Interest Paid
Sears card	$1, 325	$33	$189	28%	8 mths	$139

Look at that! Bob has his second debt paid off in another 8 months. Now Bob continues this process until he reaches his mortgage payment. The rest of his payments will look as follows:

	Total Debt	Min Payment	Actual Payment	Interest Rate	Pay off Date	Tot Interest Paid
Line of credit #1	$4, 258	$106	$295	5% [Ad#Adsense_468X60B]	15 mths	$142
Credit card #2	$8, 961	$224	$519	18%	1.8 yrs	$1, 488
Line of Credit #2	$32, 582	$814	$1, 333	5%	2.1 yrs	$1, 853

Looking further into this example, Bob would actually be out of debt much sooner as he is paying the minimum on all his debts while he stacks the lowest. For example: Bob would actually be out of the line of credit #2 debt before it came time to “stack” it if he continued to pay the $814 minimum. In this scenario Bob would be completely debt free from all debts in approximately 2.5 years.

Now Bob will take half of the payment left and add it to his mortgage and the other half will go towards long term savings. Bob will have his mortgage paid off 9.4 years earlier and will save $79, 801 in interest. If Bob saved his money at 5% he will have $178, 114 in 15 years.

This is a powerful example of how you can pay off debts faster without using extra money. Even if you use this technique and only achieve 10% of the results you will be much further ahead than before. Take the time and find out if debt stacking will work for your personal situation.

Tagged with: how to pay off debts faster • pay off debts faster • paying off debt

Filed under: Debt Settlement

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