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Paying off debt is behavioral
If paying off debt was only based on the math then we wouldn’t have any problem convincing others to eliminate it in the most efficient way possible – highest interest rate debt first. The more you pay down, the less interest you will pay over time. That is why most people promote the “Debt Avalanche” process – it pays off the debt quicker.
The problem is that we humans like shiny new things, spoiling ourselves, and are starving for instant gratification. Paying off debt does none of that so we often quit before we are finished.
The Debt Snowball process
By paying the smallest balance debts first we are able to feel the “quick win” and are encouraged to keep going. Like a child doing their math homework, getting the first answer right will often give them encouragement to work on the second answer. With the debt snowball, the easier answers are the first questions on the math quiz and they become progressively more difficult down the page.
For an example on the differences between the Debt Snowball and a Debt Avalanche approach see this post: Highest Interest or Smallest Balance
Have fun with debt
ReadyForZero gives us a way to stay energized during the long drawn-out process of paying higher interest debt before knocking out the easy ones – and that is the key! If a tool can help you stay focused and encourage you to finish, then you will pay attention then you will pay less interest. It offers a fun way to play with your debts and it’s free! Sign up for a free account at ReadyForZero.com, import your debt information, and start paying attention to how much debt you are paying off!
marcbrown says
March 5, 2013 at 11:17 pmHello Steve! First of all, thanks for the podcast. I liked and completely agree with your theory “Paying off debt is behavioral”. Perhaps, you have come across some people who though have acquired huge debts, getting regularly harassed by the creditors and collection agencies, are never affected by it and always take the issue lightly. At the same time, there are some who take their debts seriously and try hard to pay those off by any means possible. So though you might say it a behavioral process, I believe this varies from individual to individual.
Marc Brown
Financial Writer
http://www.facebook.com/OVLGroup
Steve Stewart says
March 15, 2013 at 4:57 amThanks Marc,
I agree. There are some people like my wife who must have her stapler positioned perfectly between her mouse and the corner of her desk and then there is her husband (me) who is constantly asking “where is my stapler”? Everyone is different and react to things differently. I think we can all agree that motivation is a wonderful coach which is why I still believe in teaching the behavioral aspect of finance but also give them the pros and cons of both sides so they can make their own choice. There is a side benefit to doing that: If their way doesn’t work then they already have the information and support to try it my way. 🙂
innovatebig says
March 6, 2013 at 4:01 pmThanks for the excellent review. Please keep in touch.
stupidusernamebs says
October 3, 2013 at 11:15 amSite wont link to Capital One, and a couple other debts. No option to manually add data, so they truely don’t care about helping you. USAA has been stuck on refreshing for the last 5 minutes.
Pretty pointless for me, waist of time.
Rod (@innovatebig) says
March 7, 2014 at 5:27 pmHi – we recently resolved a few critical linking problems, if possible give it another try and also please send any details to our talented support team: help@readyforzero.com so we can track this further.
Rod