The thing about getting out of financially challenging situations is that you hear all kinds of advice . So much so , that after a point you begin to lose the sense of what ’ s right and what ’ s not . You rely on professional help . You listen to what experts have to say . You suddenly decide to become a mathematician crunching numbers and calculating interest rates trying to make your way out of it . But , Dave Ramsey - the famous American businessperson and motivational speaker who helped countless people come |
out of debt successfully says that - you don ’ t have to be a math expert or a financial guru to have a plan to get out of debt . According to him , people should pay off their debts from smallest to largest . It ’ s not really so much about mathematics , as it ’ s about building the momentum . Let ’ s understand what he actually means by that , shall we ?
THE HUMAN PSYCHOLOGY
According to Dave , the ability to pay off debt successfully has many psychological implications . One of these implications is experiencing those ‘ yes , I was able to do it ’ moments . You enjoy that moment when you are able to successfully check an item off the list . For example , say you owe money to ten people and make a list of it . Accordingly to this rule , you begin by paying off the person you owe the least amount of money .
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Just the act of knowing that you have one less person to deal with is enough to make you feel as if a huge baggage has been lifted off your shoulder .
THE BENEFIT OF BUILDING MOMENTUM SLOWLY
If you start off by the biggest item on your list , there ’ s a high likelihood that soon you will start feeling discouraged and may give-up midway . We human want instant results . And not being able to pay off a huge loan for long could easily make you frustrated . Before you know , you succumb to debt fatigue . But , when you start by the easiest item on the list , you start building the momentum slowly but surely . The step by step success makes you feel more confident that you are headed the right direction , and that what you ’ re trying to achieve is not impossible . You feel confident that will get there .
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ACTIVATES THEIR MIND ’ S REWARD MECHANISM
What Dave meant when he said that it ’ s not about math , but about momentum - was that the art of paying off debt is less about the math being in favor of helping you pay off the highest interest rates first . People just want to feel like they have been able to pay off a loan and have only few more to go . For them , the psychological implications associated with list getting shorter and shorter activates their mind ’ s reward mechanism by releasing dopamine .
Starting off with the smallest loans and gradually moving towards bigger items reduces the likelihood of debt fatigue happening . So , that should pretty much explains how you can exploit human psychology in the favor of bidding your loans goodbye .
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