Nov 07 2008
Paying Down Debts the Feel-good Way
Paying off your smallest debts first isn’t the best choice when it comes to pure dollars and cents, but it can have beneficial psychological effects. The worst part of owing money to several different sources is that making real progress in becoming debt-free can seem impossible. If you have only so much extra to supplement your regular monthly payments, it’s hard to see where it can make a real dent.
The traditional recommendation is that you pay off the biggest debts first because they’re the ones that are piling up the interest charges. But quite a few financial advisors recommend getting the smallest ones out of the way first. If the biggest debt is going to take years to eliminate, the money you sink into it seems as if it’s going down a dark hole because the balance hardly budges with each payment. With a small debt, you can not only see real progress, you know that before long, you’ll have one monkey off your back.
When that happens, you can put the normal payments for that one, plus whatever extra you’ve been throwing in, to work on the next smallest. You’ve now increased the amount you have for those payments, and that debt will shrink even faster. Working from the small end means that every time you pay off one debt you have that much more to pay towards the next smallest one. It also gives you more choice about where you want to put the extra dollars. Once you have enough to make a difference, you can split it up and chop away at both ends, adding some of it towards the largest bill. One way to give yourself a good feeling about that big load at the top is to add the amount of the monthly interest to what you’re already paying.
Because the reward center of your brain responds more positively to accomplished goals than to small improvements, each debt that you get out of the way gives you an encouraging boost that helps you stick to the plan. Instead of staggering under a weight that never seems to get much lighter, you’re dumping one load after another. That psychological hand up could make the difference between being debt-free as a reward for your hard work, or giving way to frustration and despair, and plunging into bankruptcy and all its unpleasant complications.
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That was a very clear and concise explanation of a concept I kind of knew, but didn’t know why I knew. So that must be why weight loss experts say to set small goals, too.