Debt Stacking - Ditch Consumer Debt Faster

Category: finance | Last Updated: Aug 31, 2023
Software engineer, finance nerd, AI enthusiast, and the creator of Web Disrupt.

The World of Debt — It's No Fairytale

Hey, welcome to adulting 101, where I introduce you to the arch-nemesis of every grown-up (and maybe even some of you youngsters): debt. Yeah, I know, the word itself is as inviting as a cactus in a hugging contest, but stay with me here. What if I told you there's a way to give debt the ol' two piece and a biscuit? Debt free is the way to be, well kind of, there is nuance to this phrase. Its more like consumer debt free is the way to be. Enter the hero of our tale: debt stacking aka the debt avalanche method.

What's Debt Stacking? The MVP of Money Makeovers

The debt stacking method, also known as debt avalanche, is a strategy where you focus on paying off your highest interest debt first. Which means you need to prioritize from the highest interest rate debt to the lowest. It's like cleaning your room by tackling the nastiest mess first (yeah, that pile of unwashed laundry that's starting to gain sentience). Here's the dirty deets:

  1. List Your Debts: Make a rundown of all your debts, from credit cards to student loans to money you owe your grandma for last year's Thanksgiving dinner.

  2. Rank 'Em: Sort them by interest rate, putting the big bad wolves with the highest rates at the top.

  3. Make Minimum Payments: Yeah, you got to keep the debt collectors at bay. Make the minimum payments on all of them. Nobody wants to battle with collections.

  4. Extra Cash, Who Dis?: Any extra money you can muster goes toward attacking the debt with the highest interest rate. This will reduce the total amount you pay.

Why the Debt Stacking Method Works: Math Magic & Moolah Multiplication

Think of interest like mold on bread. A small spot can quickly take over the whole loaf if you don't deal with it ASAP. Similarly, a debt with a high interest rate can balloon into a mountain of moolah before you know it.

By focusing on the debts with the highest interest rates first, you're essentially stopping the most toxic form of financial "mold" from spreading. Debt stacking is like bringing in the big guns to take down the biggest enemies first, while the less threatening ones have to wait their turn.

Debt Snowball vs. Debt Avalanche: Sibling Rivalry

You might've heard of debt snowball, which is like debt stacking's younger, less math-y sibling.

Debt snowball, you pay off the smallest debts first to get quick wins and boost morale. It's the feel-good movie of debt repayment strategies.

Debt stacking, though, is like the action-packed thriller. It's more intense but often leads to a better financial ending. By taking out high interest debt first, you save more money in the long run.

There is a time and place for both strategies, technically the Debt stacking method (Debt Avalanche) is the best for paying less total money, which will help shorten the time horizon. The reason Dave Ramsey recommends the debt snowball is due to fact that by nature most people need to experience small wins to stay motivated.

Quick overview

Debt Stacking
Debt Snowball
Main Focus
Debt Stacking -
Highest interest rate first
Debt Snowball -
Smallest debt amount first
Mathematical Sense
Debt Stacking -
High—Saves more money in the long run
Debt Snowball -
Low—Not optimized for saving money
Emotional Boost
Debt Stacking -
Lower—Big wins take time
Debt Snowball -
Higher—Quick, small wins to keep you motivated
Speed of Debt Reduction
Debt Stacking -
Faster for total debt, but slower for individual accounts
Debt Snowball -
Faster for individual accounts, but slower for total debt
Debt Stacking -
Moderate—You'll need to keep an eye on interest rates
Debt Snowball -
Easy peasy—Just focus on the debt amounts
Best For
Debt Stacking -
Analytical minds wanting to save the most money
Debt Snowball -
Those needing psychological wins to stay on track

Real-Life Case Study: Jamie the Debt Slayer—An In-Depth Saga

Lets take a look at an episodic version of how debt stacking works. Introducing our fictional character Jamie, but based on too many to count true stories. Buckle up, because you're in for a binge-worthy tale of financial liberation.

Episode 1: The Starting Point—Debt City

Jamie was a typical millennial with the classic ensemble of debts:

  • Credit Card: $10,000 at a 23% interest rate

  • Car Loan: $20,000 at a 5% interest rate

  • Personal Loans: $5,000 at a 16% interest rate

  • Affirm Pay Later loan: $500 at 0% interest rate

With a monthly income of $3,500, Jamie was paying the minimums but felt like he was playing a never-ending game of financial Whack-A-Mole.

Episode 2: The Awakening—Discovering Debt Stacking

While scrolling through TikTok (because, where else?), Jamie stumbled upon a video talking about debt stacking. The concept clicked with him immediately. "High interest first? That makes total sense!" he thought, as he reached for a notepad to start his action plan.

Episode 3: The Game Plan—Laying it Down

Jamie wrote down his debts, ranked by high interest debt:

  1. Credit Card: $10,000 at 23% interest rate

  2. Personal Loans: $5,000 at 16% interest rate

  3. Car Loan: $20,000 at 5% interest rate

  4. Affirm Pay Later loan: $500 at 0% interest rate

He was already paying about $1,000 in minimum payments for all his debts. So, he budgeted another $500 from his income specifically for the debt stacking strategy.

Episode 4: The Execution—Firing the First Shots

Jamie started by making the minimum payments on his car loan and personal loan. Then he took the extra $500 and threw it at the credit card debt, bringing the payment on that up to $800 a month.

Episode 5: Extra Help—Unexpected Allies

Jamie received a tax refund of $1,500. Instead of splurging on a new gaming console, he fed it right into his debt-stacking machine, taking a nice chunk out of his credit card balance.

Episode 6: The Turnaround—Victory in Sight

Six months into the strategy, Jamie had reduced his credit card debt to $4,000. The interest payments were getting smaller, and he could feel the burden lifting. (Sometimes it helps to motivate and track your progress by just see the fact you are paying less interest)

Episode 7: The Takedown—Slaying the Beast

After another six months, Jamie annihilated his credit card debt and his Affirm payments also concluded with minimal payments. With a balance of zero, he felt like he'd just beaten the hardest level in a video game. Victory dance? You betcha!

Episode 8: The New Target—Next in Line

After his win, Jamie rerouted the $800 he was paying towards the credit card to his next target: the personal loan. This was in addition to the $100 minimum he was already paying, making it a total of $900 a month towards this debt.

Episode 9: Wrapping Up—What's Next?

Within just a few months, the personal loan was gone. Jamie previously thought auto payment were just a tax on being an adult. "But why? Auto interest rates are still stealing my hard earned money." Jamie concluded. All that was left was the car loan, and Jamie was more motivated than ever to conquer this final boss.

Episode 10: The Future—Debt-Free Horizon

Jamie calculated that with the same strategy, he'd be completely debt-free within two years. The end credits rolled, but Jamie knew this was just the beginning of his financial freedom saga.

So there you have it! An in-depth look at how Jamie turned his financial life around with debt stacking. If Jamie can do it, why can't you? Take this inspirational tale to heart. Your financial fairytale ending is waiting; all you've gotta do is start stacking!

Wrap Up of the Debt Stacking Method

Debt stacking is your tactical nuke in the war against debt. It's the financial strategy that looks at the long game, helping you save money and slay those interest rates like a pro gamer taking down enemy bosses.

Picture Your Dream Scenario:

Imagine you're strolling down a pristine beach with not a care in the world. The sand is like powdered sugar beneath your toes, and the water is as clear as your debt-free future. Your phone buzzes—it's a notification from your bank app. But for the first time in years, you don't cringe. Why? Because you know it's just another monthly reminder that your balances are fully paid.

5 Action Steps: Start Debt Stacking Today

  1. Audit Your Finances: Know where every penny is coming from and going to.

  2. Rank Your Debts: List them in order of highest to lowest interest rate.

  3. Create a Budget: Allot a specific amount for minimum payments and see what's left for debt stacking.

  4. Pay the Highest Interest Debt: Throw any extra income or windfalls towards this first.

  5. Consult a Financial Advisor: If you're still unsure, these money gurus can help you personalize your debt stacking strategy.


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