Knowing yourself is more important than the debt repayment method

When you have debt, you hear about the best repayment methods. And you get so bogged down with the best option, one that makes sense on paper, mathematically, that you miss the most important part of the decision-making process: choosing what works best for you.

When you choose what only makes sense mathematically, you also break the most important rule of debt repayment: to keep going.

The Alternative

Forget about the maths, forget about the numbers. Shift the focus onto yourself. You are an expert on your life. It only comes with self-awareness, so if you lack that, I strongly suggest you do some work with a therapist, journal, self-reflect and gain insight into who you actually are.

95% of your behaviour is subconscious, meaning you live on auto pilot. Change that. You don’t want to fool anybody in life and the easiest person to fool is yourself.

Here’s how you do it when you deal with debt:

1 - You look at you life and face the reality of your life choices. Take a piece of paper and write down all the goals you achieved. This could be anything from getting a qualification to organising a big family event. Anything that took some work, sacrifice, effort and creativity. It’s your life, you decide what goes on your list.

2 - Next, pick about 5 or 6 of those goals but make sure they’re quite different as you don’t want to end up repeating yourself. Then think and write down how exactly you achieved each of those goals. What you're interested in here are your processes, your systems. If these sound too complicated, think in terms of routines and the ways you carved out time to achieve those goals. What felt rewarding on your way.

3 - See clearly what your life has been like so far. And this way get an idea of who you are when it comes to long-term goals. Who you are when it comes to sacrifice, effort, a bit of struggle.

Maybe you're a person who always wanted to lose weight, but goes to a fitness class for three weeks and suddenly stops, just cannot keep it up. And so you will need to treat yourself to something, as a reward, after each class.

On the other hand, you could be a person who signs up for a marathon and just goes for it and keeps their eyes on the horizon. You simply know that you're going to sustain the training and make sure that you make all the right choices and accommodations in your life so that you actually reach that goal and run that marathon.

4 - Notice all patterns. The patterns will tell you where you are in terms of your behaviour. Behaviour is everything. Behaviour is something that you need to take a closer look at.

Once you have a clear picture of how you achieved goals in your life, you’ll have a good insight into your debt repayment method.

The Method

You choose the method that works for you. The hallmark of personal finance is this: it's personal.

The first one is the avalanche method. With this method, you focus on the highest interest debt, and then you make minimum payments to all of the other debts. This ensures that you don't accumulate more debt. Always make minimal payments. You pick this method when you are the long-term goal person, the marathon, thick book, long course, long-term relationship type of person.

If that’s not you, go for the snowball method. Here, you focus on the smallest debt first, you don't look at the interest, you just look at the smallest total debt amount first. And then you make the minimum payments to other debts.

What does it look like in practice? Let’s say you have credit cards with 5%, 10%, 15%, 20%, 25% interest on them. With the avalanche method, you would be focusing on the 25% interest one first because it’s the highest interest. And with the snowball method, you would not look at the interest at all, you would look at the amount of debt. So even if you had a credit card with 10,000 pounds or dollars debt on it, and you had another credit card with 200 pounds or dollars debt on it, you would go for the 200 one and focus on paying off that one first.

Always choose what works for you. Based on your behaviour. And always focus on one debt at a time. Trust me, this is how you're going to progress quicker. You never split, you never spread yourself too thinly. So if you have 250 pounds to pay towards your debt, you pay all that money towards one debt of your choice. With the avalanche method, the one with the highest interest, with the snowball method, the smallest debt. And then you track, you keep record, and you readjust. So once you've paid off one debt, you move on, and you pay off next debt. You keep the same method going.

Nothing is fixed. Everything is in a constant state of flux, of change. And so is your debt, and so are your finances. Keep that in mind. Whatever happens in your life, just remember the rule number one: keep going.

I know it's possible for you. And you know that I'm in your corner, I'm rooting for you. And no matter where you are on your debt-free journey or financial freedom journey, paying off debt is a crucial part of it. And I know you can do it. So make sure you know your behaviour, how you approach goals. Don't fool yourself. There's nobody to impress here. This is about your future; this is about your happiness; this is about your wealth. Choose well.

If you need help paying off your debt, I created Debt Kicker - a self-paced course that will give you all the tools you need to succeed. You can find it here.

Thank you for reading.

– Marta