When paying off debt, gain strength by starting small

There’s an old joke that goes: “How do you eat an elephant?”

“One bite at a time” is the answer.

The larger point, of course, is that a seemingly insurmountable task can be conquered if you start small.

I’ve always believed the principle applies when deciding how to pay off debt. Many experts will tell folks to pay their debts starting with the one with the highest interest rate. It makes good math sense. You start by going after debt that is costing you the most.

But in practice, people don’t do what makes sense — otherwise they wouldn’t be in financial trouble. I’ve found that many people fail at debt-reduction plans because they give up if they don’t feel as if they’re making progress right away.

When I work with people who are in debt through a ministry at my church, I have them list their debts, starting with the one with the lowest balance. I call it the “Debt Dash” plan because the goal is to pay off something quickly.

Let’s say you have five credit cards with balances of $10,000, $2,000, $900, $4,500 and $1,700. Under the Debt Dash method, you would start your debt-repayment plan by paying off the credit card with the $900 balance. The goal is to get some momentum.

Whenever people ask me how to attack their debt and I recommend the Debt Dash, some folks criticize me for not suggesting the high-interest method. But I feel vindicated by a study by researchers at Northwestern University’s Kellogg School of Management who wanted to know whether small victories could help win the war of debt reduction.

Turns out they can.

“Prior research suggests that the perception of progress toward a goal has a strong and positive motivational effect on goal pursuit,” wrote David Gal and Blakeley B. McShane, assistant professors of marketing at Northwestern. Their paper appeared in the Journal of Marketing Research.

The researchers point out that people often can’t muster the motivation to begin a daunting task. There’s an actual term for the behavior, they say. It’s called “the starting problem,” coined by three other researchers who were looking at the behavior of people setting goals.

Gal and McShane, who looked at random data from almost 6,000 consumers who sought help from a leading debt-settlement firm, found that having an achievable goal enhances the likelihood of settling a debt account.

“A possible recommendation arising from our findings is that when pursuing a long-term goal, people should focus on checking items off their list rather than focus simply on making progress toward their goal in an absolute sense,” they write.

It’s not that paying off debt with the highest interest rate doesn’t work. It’s just that another equally viable alternative exists.

So if you’re in debt and want to try my Debt Dash plan, here’s how:

● Start by facing the truth. Gather all the paperwork about your debts. It may be unpleasant to look at, but remember that you’re going to start small.

● Stop beating yourself up for amassing the debt. It happened. Don’t let the shame keep you from addressing the problem.

● Work on your budget so you can make trims to find the money you’ll need to pay down the debt. If your budget is as tight as it can get, you’ll have to be resourceful. Can you get a roommate for a short period? Maybe you can get a second job. Do you have items you can sell? All the extra money you can come up with will be used to pay down the debt.

● Write your list. From top to bottom, start with the lowest balance. Interest rates do matter but not in this debt-payment plan. However, if you have two debts that are close to the same amount, the debt carrying the higher interest rate should be listed before the other.

● As you are paying down your debt, be sure to inform the lender that extra payments above the minimum amount should be put toward the principal. Even after you’ve informed the lender, double-check your payments. You might want to write a separate check or execute an electronic transfer separate from your regular payment.

● Make only the minimum payments on your 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.

If motivation has been your problem in the past, take a bite out of that elephant of debt by doing the Debt Dash.

Bon appetit.

Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.