My Bill is Bigger, but Getting Smaller

By Eric Gemelli


Your Visa bill is how much? Sit down, take some aspirin to thin your blood and take off your shoes so you don't have a heart attack; there's hope and you might want to live through this.

After several months of hosting parties, buying new furniture so the house looks "right" for those parties, and generous giving at Christmas, debt can really mount. Fortunately there is a somewhat painless solution known as debt stacking that can eliminate debt for only $50 per month.

Let's say Bob Buyer has a $50 monthly payment on his Cowspot Brand computer. He also has a $100 payment on the big-screen TV, made, oddly enough, by a Japanese car company, he bought for last year's Super Bowl party, a $200 payment on the leather couch to impress the people at said party, and a $400 payment to the Japanese company that made his TV. And, like most Americans, he's swimming in credit card debt.

The ease of debt stacking is what makes it so appealing. Bob takes his smallest bill of $50, adds another $50 to his Cowspot computer payment each month. By doing this he will literally cut his payment time in half. When the computer is paid off he should take the extra $100 in his budget and add that to his big-screen TV payment, thereby cutting payback time in half again. From here he only needs several months to finish off the couch debt, as he would have an extra $200 each month to add to those payments.

With the extra $200 available per month, he should tackle ... no, not the car, but the credit cards. If the car is financed at 1.9 percent and the credit cards are draining the bank account by 16 percent, then add the extra $200 payment to the credit cards and get rid of that burden.

There are a couple of drawbacks to this process, though. First, it can take several years, but remember, getting buried took a couple years, too. Also, you have to put new large purchases off during this time. The good news is you're going to feel rich at the end. You'll actually have $600 extra available each month.

Now you have some interesting options. Your first goal should be to establish an emergency fund equal to three months' expenses; strive for six months' expenses if you're a United Airlines employee and prone to layoffs or strikes.

Once you have an adequate emergency fund, you can start planning ahead for future purchases such as next Christmas, replacing a vehicle, or a vacation. Eventually you'll have enough free cash flow to invest or pay off the house early, or both.

Mr. Gemelli has worked in the financial services profession for 12 years. He is the managing member of Cornerstone Financial Services, LLC and can be reached at 303/679-0011.