Debt stacking and paying it down fast

[MortgageQueen]

I don't endorse any particular way of paying down debt, but I did find this to be interesting and undoubtedly very effective.

What I also like is the fact that it's free and simple. I have added the link below.

If you've used this method, let us know how it went. . .

http://www.financial-choices-matter....-stacking.html

[brunt]

I personally disagree with the overall strategy, but I will admit that others may find it more appealing.

It all depends on what you measure. For me, it was not the number of outstanding debts, it was the amount of interest that I was paying. The fastest way to get this down is to pay down the highest interest rates first. If you instead worry about how many loans you have outstanding, then certainly pay off the smallest balance ones first to get the number down.

It's all a numbers game, and your best strategy depends on what number you watch.

[blueeyetea]

It's the same priniciple as The Snowball_Method.

I haven't used it, but know someone who did, and the benefit was psychological. She said seeing a debt completely paid off, even if it was small, was a major stress reliever because she could see progress and that she was getting ahead. Before that, her strategy was to distribute their extra cash on multiple debts, never paying any of them off.

[Carlotta]

I can certainly see the sense of accomplishment in getting a debt paid off and working your way through. But the rest of it doesn't really impress me too much. What happens when you need to replace one of those vehicles? And who goes through life without amassing some sort of debt? And I can certainly understand trying to pay off your mortgage sooner, but if it means you have to stop enjoying life, counting every penny and scrimping and worrying about every penny, then you aren't really living, are you? People seem to forget the difference between good debt and bad debt. Bad debt is owing for something that is already gone/used up/worth less than you paid for it (eg. a trip to Mexico that you still owe for a year after your vacation is over or a big screen tv that, by the time it is paid for, is worth next to nothing.) Good debt is a mortgage, because chances are that your home will increase in value. So pay off your bad debt and then cut up your credit cards.
I see way too many people killing themselves trying to pay off their mortgage.... doubling payments etc., and then paying for their groceries with their credit cards and paying only the minimum balance each month. How stupid is that???

[ashedfc]

I see way too many people killing themselves trying to pay off their mortgage.... doubling payments etc., and then paying for their groceries with their credit cards and paying only the minimum balance each month. How stupid is that???

Absolutely 100% correct..
People with debt should categorize their debt based on...
1. Interest rate - Prioritize to pay High interest debt first & then focus on low interest debt
2. Good Debt & Bad Debt - As mentioned in the previous post, a Good debt is where there's increase in wealth (& in some cases tax deductibility of the interest), as compared to a bad debt.

I believe the total number of debt has no financial meaning, other then some psychological feeling. Its the total outstanding value of debt & the overall interest burden to carry the debt is more important

[Darth Penguin]

Good debt is a mortgage, because chances are that your home will increase in value.

There's a lot of people who are currently in foreclosure because that gamble failed to materalise. It only works if the morgage isn't an endowment mortage when the stock market is in decline or you end up with a house costing you more than it's worth.

we were lucky enough to able to liquidise some of our assets and buy a house because as we were on a Works Visa at the time and we couldn't get a mortage at all...

[Carlotta]

There's a lot of people who are currently in foreclosure because that gamble failed to materalise. It only works if the morgage isn't an endowment mortage when the stock market is in decline or you end up with a house costing you more than it's worth.

we were lucky enough to able to liquidise some of our assets and buy a house because as we were on a Works Visa at the time and we couldn't get a mortage at all...

You're absolutely correct. I should have added "If you are in a mortgage that you can afford". And I was also generalizing.... in MOST instances, your home will be worth more than you paid for it.

[tobiwobi]

I stopped reading at this:

"The truth is that... almost without exception... whether you sort highest rate to lowest rate or whether you sort quickest payoff to longest payoff... the overall end result is for all practical purposes... the same. In other words... your debt will be eliminated in almost exactly the same time period. And... you will pay almost exactly the same amount of interest to eliminate your debt."

because it's false mathematically.

[carmanelectric]

What they have laid out I find somewhat frightening. It might be a psychological motivator, but it seems to me that one would be fighting an upstream battle against the compound interest of debt. What if (which I have seen happen on many occasions) someone's bad situation gets even worse and there is less to put toward the overall debt?

I haven't seen exactly what Gail VanOxilade does, but I know she somehow includes an element of this method to her strategies, but I know she is also an advocate of paying the highest interest debt first in most situation. I would love to see exactly how she breaks it down.

[AforceNinja]

I stopped reading at this:

"The truth is that... almost without exception... whether you sort highest rate to lowest rate or whether you sort quickest payoff to longest payoff... the overall end result is for all practical purposes... the same. In other words... your debt will be eliminated in almost exactly the same time period. And... you will pay almost exactly the same amount of interest to eliminate your debt."

because it's false mathematically.

+1 on that. There is no way interest payments and payback period would be the same

[momof3heathens]

What about when the card with the lowest interest rate has the highest balance(3x's the amount owing on other higher rate cards)?

[i_forget]

I am pretty sure that the CC companies do this on purpose....extend the highest amount of credit with the highest rates so that they can maximize their profits....

[rewok]

I've never liked the snowball method (Dave Ramsey, well known in the US financial forums), because it doesn't teach money intelligence, it's just a "all debt is evil". Even if you manage to pay down everything, you'll never be savvy afterwards if you have to get a new debt. Getting a 0% interest on a new Chevy Sonic @ 16000$ paid over 5 years because you need a new car is not the same as leasing a sparkling BMW @800$ month and 6% interest (sure it's great if you have cash to buy vehicles outright...).

I understand some people will always have trouble dealing with credit cards & stuff (my SIL does), but having a reasonable mortgage for your salary, and maybe a new car payment is not so bad.

I am pretty sure that the CC companies do this on purpose....extend the highest amount of credit with the highest rates so that they can maximize their profits....

Probably, and that's very smart on their part. CC are there to make money, not to help people out. That's why people with great incomes & credit score get good rates & high limits, because they know: you'll pay the loan back, and you don't "need" credit. The riskier you look, the higher the rate & lower credit amount. As consumers, we need to learn to manage our money & debts.