Consider ‘dash’ method when paying off debt

less money. Yet, let’s look at the dilemma presented in “Belling the Cat.”

A council of mice was convened to discuss a menacing cat. One mouse suggested a common-sense solution — to find an earlywarning system signaling her approach.

Just like a cat, interest can sneak up on you, too. By putting higher-interest debt first, you’re signaling that you understand its presence is dangerous to your financial health.

But that logic may not work best in this case. Borrowers are more motivated to get out of debt when they concentrate first on the debt with the smallest balance, according to a 2016 study published in the Journal of Consumer Research.

I teach a system that I call the “debt dash.” The idea is you start small and before you know it, you’re picking up momentum in your efforts to become debt-free.

List all your debts starting with the one with the lowest balance. Take any extra money you can find in your budget and apply it to that first one while making the minimum payments on all other debts. Once you’ve knocked off the top debt, take all that money and now go after the next one on your list, and so on. If two debts are about the same amount, the one with the higher interest rate gets priority treatment. Tax debt jumps to the top.

Make sure that your extra payments are applied to the principal and are not counted as an extra monthly payment.

“The Hare and the Tortoise” addresses the question of whether you should treat yourself while getting out of debt.

In this story, the hare speeds ahead but then stops to treat himself to a nap. I think of the hare when folks proudly tell me they saved up for a vacation or they’re continuing to eat out while still deep in debt. They shouldn’t be stopping along the road to debt freedom.

Don’t take a break from paying off debt to treat yourself. In fact, I want you to suffer. Because it’s in your suffering that you learn a lesson.

If you’re truly committed to paying off debt, be the tortoise. He doesn’t stop, and his steady pace wins the race.