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Debt Stacking: How to Pay Off Debt Faster & Save Money

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7 min.

If you’ve ever felt like trying to dig yourself out of debt only seems to make the hole deeper, you’re not alone. It’s inefficient to keep spinning your wheels while interest accrues, especially if you continue to borrow or use credit cards.

Managing debt can feel frustrating or overwhelming. One method to help get debts paid off is called debt stacking. So set aside an hour or so, take a deep breath and follow this strategy to help pay off what you owe more efficiently.

What is debt stacking?

Debt stacking is setting aside a specific amount of money each month to direct toward your debts as a whole, ensuring that you are paying at least the minimum required in each case. In “stacking” them, you treat them like a single hill to climb instead of a whole bunch of smaller ones where you have to run back and forth between them.

This method is often considered for high‑interest debts such as credit cards, but you can apply it to other debts as well, including student loans, car loans or payments toward big purchases.

You will need to look at your overall budget and decide on the amount you are comfortable with allocating to debt payments each month, again ensuring you are paying at least the minimum required in each case. Make sure it’s a number you can stick to. This may require cutting a few expenses or looking for ways to increase your income.

Next, list all of your debts and the minimum payment due each month for each one. From your debt payment allocation, deduct each of these minimum payment amounts. Those are bills you have to pay. Then, allocate the remaining amount to your highest priority debt, which is often the one with the highest interest rate.

Once you pay off one debt completely, say a credit card, then you reallocate all the payments  you were making to that debt (both the minimum and any extra) to your next highest priority debt. You pick up momentum as you go, and seeing the progress should encourage you to keep going.

How does the debt stacking method work?

Before you begin, it’s best to stop creating new debt. That is easier said than done, but review your finances and see where you can cut back or delay buying something you don’t really need immediately. Put your credit cards away where they are less of a temptation. Just don’t cancel them—yet.

Now it’s time to prioritize your debts. You can use the avalanche method or the snowball method.

Avalanche method

Start with the total amount you can afford to allocate to your debt payments each month, again making sure you can pay at least the minimum on each of them. Remember to keep it realistic but as large as you can comfortably manage. We’ll call it your money pot.

  • Step 1: List your debts in order from highest interest rate to lowest. Include every credit card and loan, even your mortgage.
    Quick tip: Try calling your credit card companies and asking if they will lower interest rates.
  • Step 2: Beside each debt, list the minimum amount you have to pay each month.
  • Step 3: Subtract that minimum payment from your money pot. Repeat for each debt on the list.
  • Step 4: Now, look at how much is left in your money pot. Add that much to your payment on your highest interest account. Because it has a higher interest rate, that means it’s costing you the most to maintain.
    Quick tip: This method may be best for you if you have some high-interest accounts that really worry you. Maybe you’ve missed a payment and had your rate increased. Tackling these first can provide a sense of security.
  • Step 5: When that top item on the list is paid off—celebrate! Then, reallocate all the money you were paying on that debt (the minimum plus any additional) using the avalanche method again, this time with your new, shorter list of debts.
  • Step 6: Keep going until you pay down your debts.

Snowball method

Just like with the avalanche method, keep that total “money pot” amount top-of-mind.

  • Step 1: List your debts in order from smallest balance to largest. As with the avalanche method, include everything.
    Quick tip: If there is one small debt that you’re able to pay off all at once, go ahead and knock that one out. It may seem insignificant since it’s small, but you will be taking the first step in the snowball method of debt stacking.
  • Step 2: Beside each debt, list the minimum amount you have to pay each month.
  • Step 3: Subtract that minimum payment from your money pot. Repeat for each debt on the list.
  • Step 4: Now, look at how much is left in your money pot. Add that much to your payment on yourlowest balance. You will be able to pay this one off quickest, giving you a sense of accomplishment and motivation to keep going.
    Quick tip: This method may be best for you if you have one or two small debts and you’re someone who is motivated by fast, visible results.
  • Step 5: When that top item on the list is paid off—celebrate! Then, reallocate all the money you were paying (the minimum plus any extra) using the snowball method again, this time with your new, shorter list of debts. 
  • Step 6: Keep going until you pay down your debts.

Debt stacking vs. other debt payoff methods

Debt stacking is not the only way to approach debt repayment. You might also explore things like debt consolidation, debt settlement or bankruptcy that are beyond the scope of this article. You may want to consult with a trusted financial, legal and/or tax advisor when pursuing these other options.

What are the pros and cons?

Like all methods of debt management, debt stacking has its pros and cons. These will vary depending on your personal circumstances, how predictable your income and expenses are and, to some extent, your personality.

Pros of debt stacking

  • Offers a clear path to freedom from debt, with a predictable timeline
  • Can cost less in the long run, since it’s more efficient than paying only minimum balances
  • Can improve your credit score as you reduce debt-to-credit ratio
  • There are no added costs.

Cons of debt stacking

  • Requires careful budgeting to make sure you have enough set aside each month
  • Will not necessarily on its own reduce interest rates
  • Takes commitment, and may take a long time, depending on the amount of debt
  • Think through each of these to help decide whether to try debt stacking.

Is debt stacking right for you?

If you are patient, determined, and disciplined, debt stacking may be the right choice for paying off your bills. The best way to decide is to review the pros and cons above and decide if you are comfortable with each.

Always start with a complete review of your budget so you have all the information before getting started. Only then can you truly know if debt stacking is right for you.

You can always try debt stacking and see if it works. It costs nothing extra, so you have nothing to lose by testing it for six months or so.

Bonus tips for debt stacking

There are some things you can do up front and along the way to help increase your chances of success with debt stacking. Follow these extra tips:

  • Maintain an emergency fund so that an unexpected expense doesn’t derail your plans.
  • Use a budgeting app or spreadsheet to track your payments and progress, and celebrate milestones to stay motivated.
  • Don’t close credit cards right away when you pay them off. This could negatively affect your debt-to-credit ratio and thus, your credit score.
  • Review and adjust your plan every so often, as interest rates or your income may change.
  • Explore ways to increase your income or reduce your expenses.

Congratulations on taking steps toward managing your finances and paying down your debt. WFG is here to help with plenty of useful information to improve your financial literacy. Explore our resources to improve your understanding of personal finance.

Should I close credit cards after paying them off?

You should be aware that closing credit cards right away when you pay them off could negatively affect your credit score. If you want to keep them open for that reason, but struggle to resist using them, you could cut up the physical cards and remove your saved payment information from any shopping websites that tempt you.

Can I use debt stacking for student loans or mortgages?

Debt stacking can include any kind of debt, including student loans or mortgages. You may want to keep in mind the potential result of missing a full payment, such as the loss of collateral like your house if you do not pay your mortgage. Student loans may have flexibility, with income-driven or graduated repayment plans sometimes available. If your student loans have a low interest rate, it might make sense to follow a graduated plan, but if the rate is high, you will want to prioritize paying those down.

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