Why Starting Small Is The Best Way To Tackle Debt

Business Insider

View photo

.
guy paying bills on phone at desk computer

Instagram/epmcgarity

When you're training for a marathon, you don't start by going for a 26-mile jog. Why should paying off your debt be any different?

That's the argument Michelle Singletary makes in a recent column for The Washington Post. While conventional wisdom says to tackle debt with the highest interest rates, Singletary says that in her experience, people have a hard time sticking to the plan.

"It makes good math sense," she writes. "B ut in practice, people don’t do what makes sense — otherwise they wouldn’t be in financial trouble."

The problem is a lack of motivation: paying off large amounts of debt takes time, and it's easy to feel as if your small contributions each month aren't making a significant dent.  One solution, Singletary says, is to throw out the conventional wisdom and focus on those amounts you can take care of quickly in order to build up momentum. 

"Write your list. From top to bottom, start with the lowest balance," she says. Then make only the minimum payments on the other debts. "Once you’ve paid off the first debt, take the extra money and now apply it to the next one on your list."

It might not be the fastest way to pay off debt, but Singletary points to a study by  researchers at Northwestern University’s Kellogg School of Management that  found that having an achievable goal enhanced the likelihood of participants settling a debt. 

If you're at the bottom of a mountain of debt, take Singletary's suggestion and start small to build momentum. Once you've gotten a few cards paid off, shift your attention to the big ones with high interest rates and chip away dollar by dollar.

Here are a few other simple ways to tackle debt without cashing out your savings:

  • Print out your monthly bank statement, and go over it line by line. Find two recurring expenditures — lunches out with coworkers or your weekend bar tab — and make a commitment to cut those two expenses in half the next month. The second month, add another expenditure to the list. Any money you save should go straight to your credit card bills.
  • Get creative with substitutes. Can't wake up without your Starbucks latte? Get a carton of milk to keep in the fridge at work and buy a double shot of espresso each day instead, which costs about half of what a grande latte costs. If you go through one quart of milk a week, you'll get the same amount of caffeine as a latte while saving just under $500 a year.
  • Reduce, reduce, reduce. Have a magazine subscription you always read? Go to the library. Gym membership? Run outside or use free workouts on YouTube. Like to have a glass of wine with dinner? Forget the fancy label and check out 10 bottles recommended by the experts for under $10. When it comes to paying off debt, every dollar counts — literally. 


More From Business Insider

Rates

View Comments