J: Today we're going to talk about [BLEEP].

What did I say?

[BLEEP]?

Look, I know [BLEEP] is technically a 4-letter word, but how are we ever gonna get out of [BLEEP] if we can't even say the word (sneaky pause) [BLEEP]... Debt!

Ha, gotcha!

P: Among the subjects that people like to talk about, debt ranks right between "Toenail Fungus" and "Other People's Dreams".

Your brain just doesn't want to hear it.

And that emotional reaction is partly why it's so hard for people to pay it off.

P: But there's hope!

Researchers have figured out a way to rewire your brain into taking this monster head-on.

J: Not only can it save your finances, it can teach you a lot about how your brain works.

And maybe in the future, you won't have to be afraid of the word [BLEEP]--Oh, come on!

P: The average debt-holder in America currently holds about $8,000 in Credit Card debt over 3 cards, $26,000 in student loans and another $10,000 in car loans.

That's a lot for one person to manage, and they all have different interest rates, terms, and loan balances.

In short, bit of a confusing mess.

How do we get started?

J: First things first: You've got to mind the gap!

The gap is the difference between what you make and spend a month.

Without a gap, there's no money available to make any kind of progress.

The two ways to widen your gap are more income or less spending--but hopefully it's a mixture of both!

Once you have a gap to work with, it's time to think strategy.

P: If you asked a mathematician how to structure your debt, they'd probably recommend something like the Avalanche Approach.

You list your debts by interest rate with the highest at the top and the lowest at the bottom.

You pay minimums on everything except the loan with the highest interest rate, which gets the biggest part of your gap.

Once that one's paid off, you use the increased cash flow to move down the hillside like an avalanche.

By the time you get to the bottom, you've saved the most amount of money because you've paid as little interest as possible.

It's mathematical, it's logical, and... it doesn't work very well.

J: The Avalanche Approach may be mathematically sound, but it omits one important factor: your brain.

Humans aren't robots or Vulcans.

They're emotional beings.

They get discouraged, they get overwhelmed, they have trouble staying on course.

It's the same reason why those debt consolidation plans can be a bad idea.

It may seem like you're simplifying your life to put all your loans into one big basket, but what it really does is create a giant, hulking debt monster that feels so intimidating your brain just gives up.

P: So, is there a method that works with your brain's psychology instead of against it?

Well, it turns out that...

Uh, Julia... we're in the middle of something here.

J: I know, I know!

I was about to put it down, but then I cleared a boss stage and upgraded the frosting on my cupcake cannon, I think I can get to to Persimmon Palace by bedtime... P: Turns out that the same mind-control techniques found in video games can work with your finances.

P: Game designers strategically dole out positive reinforcements--clearing a board of gems, upgrading your loot--which floods your brain with pleasurable dopamine and keeps you playing.

At first, these rewards are handed out easily and often to get you hooked, and then more spaced out and difficult as time goes by.

J: It's really effective and a little bit evil BUT the same brain-hacking technique can be used to pay off your debt.

It's called the Snowball Method-- Instead of listing your debts by interest rate, you list them by balance.

Like the Avalanche Approach, you pay minimums on all of them EXCEPT you focus your firepower on the smallest balance.

Once that's wiped out, you roll that extra cash up the hill to the next highest balance, and so on and so on.

The Snowball Method ensures you easy victories early on to keep you motivated.

Every time you cross a debt off your list, it's like slaying a beast and upgrading your weapon.

Your brain will keep chasing that dopamine fix even as the levels get more challenging.

P: While someone using the Snowball Method will technically pay more overall interest than someone using the Avalanche Approach, that assumes that they're both going to see it through.

But a study by David Gal of Northwestern University found that Snowballers were much more likely to actually stick with the plan and successfully eliminate their debt, even if they owed more money than the Avalanchers.

P: Because they gave themselves that dopamine edge.

J: Oh [BLEEP]!

P: (aside) Julia!

J: Oh, sorry!

[puts phone away] No matter what method you use, the hardest part of getting out of debt is often just starting.

And it can get lonely because, you know, people don't like to talk about it.

P: But with determination and a planning, you can turn debt into something you don't want to think about... into something you don't have to.

P&J: And that's our two cents!