Advertiser Disclosure

Why is it So Hard to Get Out of Debt?

Oct. 19, 2012
Personal Finance
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.

Getting out of debt, just like keeping a budget, should be a no-brainer. Plenty of people preach the prosaic methods of how to track your repayments on a spreadsheet, and to never spend more than you earn. And yet, for all its simplicity, getting out of debt is hard. The mess of bills and rapidly mounting interest has a profound effect on human emotions, often leading to irrational behavior and denial.

It’s important to make the experience of paying off debt not awaken those negative emotions—but you have to go about it in the right way. Many people try the strategy of paying off the debt with the smallest balance first, which is known as the snowball method. The idea is that you will get a sense of accomplishment from closing out a small debt, and feeling good will help you dig yourself out of your larger debts. But it’s illogical, because focusing on the smallest debt ignores interest rates, which should be at the top of your list of priorities. Behavioral psychologists say that this is an example of people attempting to achieve larger, overarching goals by breaking them into smaller, manageable tasks. The problem in this case is that tackling those smaller goals first is actually hurting the ability to achieve the larger one. “We propose that consumers saddled with multiple debts will primarily be motivated to reduce their total number of outstanding loans, rather than their total debt across loans, a phenomenon we refer to as ‘debt account aversion,’” wrote Moty Amar, Dan Ariely and other researchers in a 2011 paper called “Winning the Battle But Losing the War: The Psychology of Debt Management.”

Stop Fighting With Yourself

So basically, your natural human impulses and tried-and-true problem solving strategies are working against you. But don’t despair! You can hack your natural tendencies towards debt account aversion by using an automated system, such as the one offered by Ready for Zero. Ready for Zero uses a variety of visual cues, email reminders and positive reinforcement to help users stick to a comprehensive and well thought-out repayment plan for their debts.

“We can all identify with the feeling of trying to track your budget and losing motivation,” Ben Feldman, writer and content strategist at Ready for Zero told me, when I asked about how their product gets around people’s natural tendencies towards debt account aversion. “We make it easier to stay motivated, and find that organizing it in a visual way makes it more likely people will achieve their goals.” Ben described how Ready for Zero has a progress bar image, where users can see themselves moving towards their goal.

Shannon McNay of Ready for Zero added that the product sends out emails to users when they hit certain goals. “It sends you an email with a trophy, saying ‘congrats, you made it,” she said. “We try to make it a positive, fun experience.”

The Illusion of Progress Spurs Progress

This visualization of progress gets into something else the researchers talk about in the paper quoted above: the goal-gradient hypothesis. “A large body of research on animal learning lends credence to the goal-gradient hypothesis, which posits that the motivation to complete a goal increases with proximity to the goal,” the psychologists wrote. They add that even the illusion of progress towards a goal increases the effort you put towards the goal. So with the example of Ready for Zero, while an image of a trophy might not appear to do anything, and a colored line moving across a progress bar might seem inconsequential, these are actually reinforcing the natural feeling of accomplishment that will make the getting out of debt process easier.

“When you’re in debt, it’s like there’s a black cloud over your head,” Shannon added. “We want to help you get out of that funk and feel empowered. It’s not going to happen overnight, but you can do it.”