New research has shown that starting small could be the best strategy for paying off credit card debt. A study by Professors David Gal and Blake McShane from Northwestern University’s Kellogg School of Management has suggested that targeting smaller debts before larger debts motivates debtors and improves the chances of all the credit card debt being repaid.
Gal and McShane reviewed data of a debt-settlement firm’s clients, and found that those who focused on paying off the smaller components or balances of their total credit card debt were less likely to be overwhelmed by the debt and discouraged from paying it off.
The study found that in the first year of repaying debt, borrowers who focused on paying off smaller balances over higher-interest-rate debts were 14% more likely to succeed at paying off all their debt. Borrowers who persisted with repaying debt for four years were 43% more likely to succeed in making a full repayment if they started with smaller debts.
This research contradicts the common advice to start by paying off credit-card debt subject to the highest interest rates. While this strategy has the benefit of lowering the total amount of interest paid and reduce the time it takes to repay, focusing on larger debts can be overwhelming and discouraging for debtors, reported CBS News.
