Slaying the Debt Dragon
Positive reinforcement is the first step
by Alacias Enger
According to a 2017 survey by Career Builder, nearly 3 in 4 workers claim to be in debt, and more than half of them believe that they always will be. What a hopeless feeling: to feel like you’re in a bottomless pit and that you could never dig your way out. But how did we get here? This same survey found that a staggering seventy-eight percent of U.S. workers are living paycheck to paycheck. If you’re among this seventy-eight percent and living with HIV/AIDS, one bout with the flu could leave you in a state of financial emergency. While the Family Medical Leave Act (FMLA) will protect you against job loss in such situation, it does literally nothing to offer protection from your dwindling or nonexistent paid leave time. In other words, you might have a job to come back to, but no paycheck in the meantime. Cue entrance music for Mr. Visa! This is where Mr. Visa comes waltzing in, offering his services. The next thing you know, you’re charging your bills and vowing to worry about it later.
You try to forget about it, that is, until the credit card bill arrives in the mail, and you anxiously tear it open. It’s common to feel a sense of shame about your debt. This feeling is quickly exacerbated by the little chart printed at the bottom of your credit card statements. You know the one they’re required to print that explains to you that if you simply make the minimum payment, you’ll be paying it for the next 7,000 years? Okay, I’m exaggerating, but it doesn’t really matter. It could say, seven years or 7,000 years. It’s all the same. It just adds to the anxiety you’re already feeling, and that’s a dangerous space to be in. When we connect negative emotion to our relationship with money, it can feel easier to do nothing than it to deal with it. Anyone living with HIV/AIDS has enough demands being placed on their money. Mr. Visa doesn’t need to be one of them. Furthermore, the stress and anxiety that comes along with the debt makes its price tag too high. It takes a toll on our mental and physical wellbeing, and absolutely has to be eliminated. If any of this sounds familiar, it’s time to slay the debt dragon once and for all.
In an earlier column, we started discussing repayment strategies. Some people call them by names such as the “debt snowball,” the “debt avalanche,” or the “debt tsunami.” Regardless of what you call each strategy, it’s important to choose one that fits your personality. Last time, we focused on repaying the debt with the highest interest rate first. This month, we’ll cover a slight variation of this strategy.
The Smallest Balance First
This is for people that have either been experiencing a lot of negative emotion surrounding their debt, or those who consider themselves to be driven by emotion. This strategy is designed to begin repairing your relationship with money by allowing you to see progress very quickly, thus triggering positive emotions that directly correspond with financially responsible behaviors.
First, gather your most recent credit card statements. Jot down the balance, interest rate, and minimum payment. Arrange them into a list starting with the smallest balance at the top, followed by the next smallest balance, and so forth until the largest debt is at the bottom.
Continue to pay the minimum payments on all cards every month. Pay extra on the card with the smallest balance.Anything remaining in your budget should serve to pay it down every month. You’ll probably be able to pay this first one off pretty quickly which will help to build momentum. Had you started with your largest balance, you might get frustrated and give up. By paying off something small first, you quickly score an emotional win.
Once the first card has been paid off, the amount that was being applied to it monthly is automatically applied to the card with the next smallest balance. Keep repeating this process until all credit card debt has been eliminated.
There are exceptions to consider when selecting which card to repay first. If any of your credit cards are causing you more stress than the others, perhaps start with it before moving on. Also, any cards with introductory rates are time sensitive and should be tackled first.
Next, we’ll discuss emergency savings accounts so as to avoid adding more debt in the future. Remember, you can do this. Your first win is just around the corner.
Alacias Enger is a performing artist, writer, and educator. She lives with her partner in New York City, and is the founder of blogs “Sense with Cents” and “Travel Cents.” Follow her on Twitter @sense_w_cents. If you have a personal finance question you would like answered in the column, please send an email: [email protected].