The problem with debt is that it’s so easy to acquire. Every
day you confront a marketing industry that spends billions of dollars every
year convincing us to constantly buy, buy, buy. While we’re in the store buying
they’re happy to offer us a credit card to buy even more while they take a cut
from our future earnings so we can have that stuff NOW. And the average
American? We’re powerless to protect ourselves. Which class in school taught
you how to defend against billions in
marketing efforts every day? Which credit card company patiently explained to
you what APY means, or which of their hidden fees could secretly ruin your
life? Is it any wonder the average household in the United States has $15,000 in credit card debt?
The worst part about debt is that all the psychology that
goes into convincing us to accrue it, to buy buy buy, leads to a mental blocker
that terrifies us to examine how much we really owe and take steps to pay it
down. Focusing on the now is what got us into the debt in the first place (“With
the new store credit card, you can have that jacket you love TODAY!”), and it
paralyzes us into being too afraid to protect ourselves in the future and crawl
back out.
Today we’re going to learn how to use the same psychology
advertisers and retailers use to enslave us with debt in order to pay off that
load and become debt-free for good. Today we’re going to talk about gamifying
your debt with the Snowball method.
Gamification
Ever notice how video games seem easy in the early levels
but slowly get tougher to beat the longer you play? The first Goomba in Super
Mario Bros. is a lot easier to manage than the final battle against Bowser. Why
is that? Because just like marketers, we game designers understand applied
psychology. The first levels are easy because humans like to feel good and
competent at the things they’re doing. When you play the first few levels of a
game and do well you get a little positive reinforcement. Your brain says, “Hey,
you’re pretty talented at this! That feels good! Keep playing!”
The end result is that that positive reinforcement draws you
into the game. By the time you get to level five and you’re dying every 30
seconds you’re motivated to continue because you feel you’re good at this thing
and you enjoy what you’re doing. If instead they had introduced you to level
five right away you would have become discouraged at your constant failures and
walked away from the game entirely. This design element is part of a process
called “gamification” where psychology is used to get a better outcome for the
player. Those little badges of success you earn along the way to accomplishing
a big end goal keep motivating you to move forward instead of discouraging you
with constant failure or lack of progress.
Enter: The Snowball Method
In debt repayment the Snowball Method utilizes the same
psychological theories that gamification relies on to help you pay off your
debts. You organize all of the money you owe and who you owe it to in order
from the smallest amount owed to the largest amount owed and start making extra
payments on the smallest debt total. Here’s an example:
·
You owe $500 at 3.5% interest for a bank loan
with a $50 monthly payment
·
You owe $1,200 at 27% interest on a credit card
with a $100 monthly payment
·
You owe $5,000 at 8% interest for a car with a
$200 monthly payment
The strategy for paying off the debt focuses on starting
with the smallest total you owe. You pay the minimum payment on everything, and
all of your extra money goes towards paying off that $500 debt after your
expenses for the month. Soon that debt will be paid entirely, saving you money
on interest payments and increasing your cash flow (the amount of money you
have each month not dedicated to being spent on something). Paying off the $500
bill is a little psychological achievement badge that makes you feel good about
what you’re doing and motivates you to keep going with paying off the $1,200
debt. Plus now that you don’t have the $500 debt to pay off you have an extra
$50 each month to put towards paying off the next debt! Soon you’ll conquer that level’s boss and move on to the
ultimate end boss: your final debt. Along the way you get the psychological
bump of paying down your smaller debts, diligently “playing” until you’ve leveled
up all the way to debt free!
So how do you get started gamifying your debt using the
Snowball Method?
First figure out what you owe
Just like in the 10 Steps the key to starting your debt repayment is learning
what money you owe and to whom you owe it to if you don’t already have that
information. A quick way to find the lion’s share of your debts (if not all) is
to get your free credit report from the government. You can do this entirely
free once each year,and you can do it at this link.
List all your debts from smallest to largest
Once you know WHO you owe money to, it’s time to list each
of those debts in order from the smallest to the largest. You can do this using
your favorite spreadsheet program (Microsoft Excel, for example, or Google Spreadsheets) or if you
prefer a word processor like Microsoft Word can manage it too. Hell, you can go
old school and just write them down on a piece of paper and stick it on the
fridge, crossing out each debt as you level up from defeating it. Do what works
for you!
Pay your minimums, then put the rest towards the smallest debt
Make sure to pay your minimum payments each month so your
credit isn’t negatively affected and you don’t fall behind on your debts. Then,
every extra dollar you have available after you pay the rest of your bills
should go towards paying the smallest debt load you have left. Whatever you can
put towards that debt, do it! The name of the game is getting that sum paid
down as quickly as possible so you can level up. Get a $50 check from grandma
for Christmas? Throw it at the debt! Tax refund come in early? Throw it at the
debt! Whatever you can do to get that debt paid off so you can pass the first
level and move on to the next, do it!
Level up and put your monthly minimum towards the next debt
Soon you’ll have your first debt paid off. Hurrah! You’ve
leveled up! Next month’s bill will mean paying more money towards the next debt, or level 2 for the purposes
of our game. Your goal is now to get that thing paid off as quickly as possible
with the extra cash flow from paying off the debt from the first level. Then
you repeat for the next debt, and the one after that, and the one after that,
until you’re debt-free.
Celebrate being debt free!
When you beat all
the levels? Hurray! You’ve finally managed to fight back the enemy marketers,
the billions of dollars spent on convincing you to consume, and slayed the insidious
end boss that is debt which was strangling your net worth and preventing you
from achieving your goals in life. Celebrate beating this incredibly difficult
game by cooking a nice meal with your family, kicking back with a low-cost film
from Netflix (or get one from the library for free) and holding onto the good
feelings you got from paying your debt off to keep yourself from falling back
into those patterns.
Every day we face the sum total of billions of dollars in
applied psychology trying to part us from our hard earned dollars. Fight back!
Apply some of your own psychology to inoculate yourself from their efforts and
pay down the debt you’ve accrued so far. Set yourself free, and enjoy the
journey by using gamification.
No comments:
Post a Comment