Debt can be overwhelming, especially if you’re behind with several different payments at once. When it comes to scheduling repayments, it can be hard to strike the right balance. It can be easy to get disheartened, and resign yourself to constantly paying out.
However, research into money repayment strategies has shown that if you start small, there can be a light at the end of the tunnel. Read on to find out how small financial wins can help you on your way to a debt-free life.
Why There’s Power in Small Wins
Some people may have multiple credit card accounts, perhaps in addition to a high interest loan, or other money owed. They may take a ‘scattergun’ approach to repayments, regularly distributing a chunk of income amongst the different credit card accounts, or towards various loans. However, research states that people are more likely to work towards getting out of debt completely if they concentrate on paying off the smallest amount first.
The research dealt specifically with credit cards in arrears (though the theory can be applied to most forms of debt), and consisted of various exercises. The results of the exercises show that people who focused on paying towards only one of their multiple accounts eventually paid more of their overall credit card debt in comparison to those who attempted to balance multiple accounts.
Why is this?
It turns out it has a lot to do with psychology. It has been shown that concentrating on making repayments towards one account increases motivation to work towards the aim of paying off that same account completely. This, in turn, makes people work harder, and more quickly, to become debt-free.
It works because it makes the goal seem more realistic, and makes the progress that has been accomplished feel more tangible and meaningful. That is the power of a small win: there is solid proof in a paid-off debt, and this proof is motivating as it shows paying off an outstanding sum as doable.
This is the nature of small wins in general: if we experience a feeling of making progress, we are more likely to continue to do so in the future. We feel as though we are getting somewhere. We feel as though we are accomplishing something. Additionally, making progress is also a mood-booster as well as a powerful motivation tool – so keep that in mind!
When it comes to your own personal finance needs, it’s good to know that by starting small, and concentrating your repayments, you may eventually achieve huge goals. You may find it is an easier method of managing your debts, if not a road to complete freedom.
The Advantages of Prioritising
When it comes to achieving these little victories, it’s great to start small, but you also need to prioritise. Make sure you know which outstanding amounts deserve the most attention. This comes from understanding your debts, so be sure to refresh your knowledge of their terms and conditions.
Look out for high interest rates on credit cards and loans. Those are the repayments you should probably prioritise above an arranged overdraft that doesn’t incur monthly charges, for instance. The advantages of doing this are that you won’t accumulate further debt in the form of interest charges.
Keeping Track of Your Progress
You can use Money Dashboard’s personal finance assistant to help manage your debts and achieve your repayment goals. You can track any bank accounts you have, taking note of savings, income, spending patterns, and repayments of debts. You can then use the budget planner to account for repayments into your spending. You can calculate and allocate an appropriate amount of money that will go towards paying off that one smaller debt, for example, which gets you a small victory and a motivation lift.
By setting these goals, and any other personal financial goals you may have, with Money Dashboard, it is easy to track your progress. By working hard to fulfil your repayment goals month after month, you will gain that sense of achievement and productivity that is needed to eventually shake off debt completely.
So, next time you’re planning your repayments, consider choosing the smallest outstanding amount that you owe to focus on clearing first. That said, make sure to prioritise and eliminate the sources of extra charges. Plan carefully by using Money Dashboard’s personal finance assistant to keep track of multiple accounts.
As always, if your debts are causing you an overwhelming amount of stress, or your feel you aren’t managing, you can seek free advice from National Debtline.