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The Psychological Trick That Will Help You Pay Off Debt Fast

New research explains the best way to get your debt paid off.

Debt affects more than just your credit score—it also impacts your psychological health. Studies show debt weighs heavily on your mental health and paying it off may reduce your stress and improve your psychological well-being.

The statistics on debt vary greatly because studies don’t always agree on whether to include all debt, like mortgages, or just unsecured debt, such as credit cards. But one thing is for sure—most Americans owe a fair amount of money. According to NerdWallet, the average U.S. household consumer debt profile looks like this:

  • Credit card debt – $15,863
  • Mortgage debt – $156,584
  • Student loan debt – $33,090

Of course, many households have other debts as well, such as medical bills and personal loans. And while it may seem the solution to debt is to simply “spend less than you make,” that piece of financial advice doesn’t help people gain the self-control necessary to pay off their bills.

The Secret to Paying Off Debt

Radio personality and money-management expert Dave Ramsey has spent years telling his audience to pay off their debts from smallest to largest, regardless of the interest rates. His critics argue that a get-out-of-debt plan should start with paying off the debt with highest interest rates first. While this approach makes the most sense mathematically, a new research study confirms that Ramsey’s approach is more likely to be effective.

A study published in the Journal of Marketing Research reports that paying off your smallest debts first can help you gain the motivation you need to tackle the larger bills. Researchers concluded that completing small tasks provides an added boost to motivation, which helps people tackle larger tasks. So, once you pay off that $300 doctor’s bill, you’ll have more motivation to start paying off your $1,500 credit card.

Additionally, researchers found that participants experienced a surge in motivation as they neared completion of a task. When subjects could see the finish line, they worked harder to get the job done. So breaking debt down into small, more manageable tasks could you help you stay on track so you can get out of debt faster.

Motivation and Self-Control

When you’re trying to pay off your $100,000 student loan, you’re more likely to give into temptation to purchase that designer watch or those expensive concert tickets. It’s easy to convince yourself that a few hundred dollars won’t make much of a dent in a debt that big.

But, if you’re trying to pay off a smaller bill, say the last $1,000 on your car payment, that same $500 can make a big difference. Starting with a smaller goal can increase your self-control and help you to stick to your budget.

So while it would make sense to begin paying off debt with the highest interest rate if you could maintain motivation to pay off your bills, psychological wisdom says you’ll struggle to stay on task. Behavior depends on how you feel and how you think.

When you feel a sense of accomplishment after you pay off a small debt, you’ll think more positively about paying off other bills. That boost in your mood can help you stick to your budget.

Paying off debt is more than just numbers—it’s a test of mental strength. It requires hard work and self-control. Paying off your smallest debt first offers a chance to celebrate small milestones, which can spur you on to reach your financial goals.

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