There are different kinds of debts that you might have to deal with at some point in your life. It may be Credit Card debt, a mortgage, or a student loan. As a result, many of us may feel obligated to work overtime and at jobs which may not be satisfying, to say the least. A great amount of stress could be eliminated by learning how to clear the debt quickly and effectively.
This is where the Stack Method comes in. It is a great way to pay off your debts in the shortest amount of time. Read below for the 8 magical steps to a debt-free life.
Step 1: Put A Full-stop On Generating New Debt
The first step to being a debt-free individual is to learn to manage your money. Know your limits and take financial decisions accordingly. Not everyone is adept at managing their expenses. Therefore, the easiest way to learn is to avoid getting further into debt. Debt is like a pool, in order to keep yourself from drowning it becomes essential to avoid going into the deep end.
Additional Reading: Drowning In Debt? What NOT To Do To Stay Afloat
Say ‘No’ to marketers offering you easy finance. Happiness should not be associated with buying unnecessary things. Our priority is financial stability and the tranquillity which comes with it.
Stack away your Credit Cards which may tempt you into spending money which you do not possess. Put them in a place where they will be safe and secure, even from you! Bring them out only when you absolutely need to.
Step 2: Prepare A Top-priority List
Prepare a list of all the debt you are under and arrange them based on the rate of interest. The one with the highest rate of interest should top the list. It is wise to clear that one off first. Paying off the debt with the highest rate of interest is an important principle of the Stack Method.
Not paying heed to the interest rate is a sure shot way of staying in debt. Over the course of time, the amount to be paid increases greatly and more often than not we are not even aware of how much more than the original sum we end up paying.
For instance, the time you take to pay your debt may exponentially increase the sum you end up paying. Sometimes even double the loan that you were under. Therefore, it is crucial to pay off the debt as fast as possible.
You can make use of a Loan EMI Calculator to figure out how much interest you are paying on your loan.
Step 3: The Interest Rate Reduction
Here’s a quick tip on getting a lower rate of interest on your Credit Card. You can achieve this by moving your Credit Card to a different bank. There is a high possibility that the new bank will give you a lower rate of interest to secure you as a customer. Do some research and get the lowest rate that you can get for the maximum amount of time. Make a habit of reading the terms and conditions of every new deal that you get into. Do not let this move become an additional burden.
Step 4: A Concrete Financial Scheme
Now let’s build upon the money management point mentioned in Step 1. For starters take a notebook and write down your earnings after paying off taxes, necessary expenditure, and the monthly instalments of your debt payments.
Make a list of all your expenses and grade them according to their level of necessity. The ones at the bottom of the list should now be scrutinised. It is important to do away with them for a financially stable tomorrow. The trick is to create a calculated method of expenditure. The key is to keep your expenses lower than your earnings.
Additional Reading: Simple Money Management Hacks
Next, assign the amount of money you are willing to spend on each domain of your everyday life. Segregate them into different categories, such as groceries, clothing, rent, etc. Make sure that the money assigned to a particular category is only spent on that.
It would also help to form an emergency fund and a recreation account. This way you will remain motivated and well prepared for any unforeseen circumstances.
Now make sure that you calculate and keep aside any money you have saved to pay off those debts. Make a grounded estimation of the amount you can keep as savings. This will be your stack repayment account.
Step 5: Repayment Strategy
The primary principle of the stack method is to never miss the minimum instalment of the debts that you are under. Failure to meet the instalments will result in added late fees. It only increases the amount which you are liable to pay.
To deal with the priority debt—the one with the highest rate of interest—you will clear it by adding your stack repayment saving to it. Remember that this is exclusive of the minimum instalment which you are already paying regularly. Through this process, you will be able to clear the debt in full, much faster.
Eventually, your main minimum instalments will decrease. The money saved from these decreasing instalments should be saved and added to the stack repayment account. This will ensure that the debt is cleared efficiently and effectively. The more you save on the main minimum instalment (minimum amount that you are liable to pay) the more you can add to the stack repayment account.
Step 6: Track Your Growth
It is essential to see the progress that you are making. Rewarding yourself for a good job will keep you motivated and on track. Keep goals for yourself and celebrate when you achieve them. It does not necessarily have to be a monetary reward.
Money management can be developed into a habit. Make it one of the many things that you do every day without much hassle. Rewarding yourself for making great progress will serve as a reminder that you are helping yourself become independent.
Step 7: Growing Stack Repayment
Once you have cleared your priority debt, the amount which previously went as a minimum instalment for it can be added to the stack repayment account. Now, move on to the next big debt on the list. This time, you will be able to pay it off faster. The stack method works wonders because of this very technique. For every debt that you clear, its minimum instalment amount will be added to the stack repayment account. It will enable you to pay debts faster each time. This is the key to you becoming debt free in a short amount of time.
Step 8: Do Not Be Too Hard On Yourself
The process is one which will take time and commitment. No matter how diligently you follow the plans, chances are that you might stumble once in a while. Do not take this as a failure but a chance to do better from thereon.
Sometimes, due to unforeseen circumstances, you may mess up your financial spending scheme. Do not admit defeat because of one lost battle. Strengthen your resolve and focus on winning the war. You can keep yourself up and running but only if you work with yourself. This is how you will be able to relieve yourself of this burden called ‘debt’.
Following these steps will help you lead a debt-free life. The sooner you reach the target the better it will be for you and your family. These steps are effective and fast. If you want that extra help then go ahead and make them your life’s motto. Remember, a happy and peaceful life awaits you if you choose to buckle up and get to work.
Additional Reading: Top 5 Money Management Apps
We understand that some of you might be looking for a quick solution to your debt problems. Sadly there are no genies out there to grant this wish (unless you receive an unexpected windfall), but what you can do is consolidate all your debt as one at a single rate of interest. You can do this by taking a Personal Loan. Pay off all your debt using this loan and then repay your Personal Loan regularly. Check out Personal Loans across banks with BankBazaar. Compare them to find the one with the best features and lowest interest rate.