Most Americans out there have debt. Whether that be student loans, credit cards, car payments, mortgages, tax debt, etc. And for those of us who are on a journey to financial independence, paying down your mortgage, or just trying to get out of debt it can feel like a marathon. I mean it is tough and mentally taxing. I mean I look at the only two debts I have and because they are large I think I will never get there. That is why I think it is important to set up long-term and short-term goals for your debt payments. When you hit those milestones then I think it is ok to give yourself a little reward.
Reward? What Do You Mean Reward?
Now I don’t mean a vacation. I don’t mean buying hundreds of dollars of clothes, but I am saying something small. Perhaps, you treat yourself to dinner out a decent restaurant or you buy yourself a moderately price pair of shoes (with cash of course do not use debt to buy more stuff) or maybe out to a movie or whatever.
Reward Advantage #1: You Stay Motivated
One of the biggest problems people have with paying off debt is motivation. It is like anything thing new you have to train yourself to do it. Going to the gym, running a marathon, or other physical activity takes time to train and build muscle memory. Personal finance is the same way you have to train yourself into good habits.
According to a Kellogg School of Management study those who prioritize small debts first, pay them off, and then tackle larger ones are more likely to pay off their debt in general. The reason why people are more likely to pay off all of their debt is because of the quick wins. They feel like they are making progress. Debt payment can be a long process that is why you need to break things up. Provide yourself small goals (small debts) or break larger debts into chunks, pay them off, and give yourself a bit of a break. It keeps you motivated because of the quick wins.
Reward Advantage #2: You See the Light At the End of the Tunnel
Another advantage by rewarding yourself is that you can visually see the light at the end of the tunnel. I don’t know about you, but when I get close to a goal I want to finish it right then and there. If I knew there is a reward at the end of my small goal I am more apt to dig in and just get it done. I can see the light, break through, reward myself, and then move onto the next goal.
Reward Advantage #3: You Save Money in the Long-Term
Now this might sound counter-intuitive, but here me out. The reason why you would save money is because by having that small reward you will finish your tasks. The biggest problem people have with debt is not only the accumulation, but the ability to pay it off. The more short-term goals you have, the more rewards you get, the more debt you will pay off. And in the long-run the interest from those debts will go down, saving you and your family money.
Reward Advantage #4: You Train Yourself Into New Habits
Giving yourself a small reward at the end of paying off debt helps to train your brain and your money muscles to do things differently. Dave Ramsey is found of saying that personal finance is 80% behavior and 20% head knowledge. I think he is dead on. You have to change your behavior when paying off debt so you don’t go back to that place again. Rewarding yourself helps you along the way to changing that behavior. You realize that you engage in living life without taking out the credit cards or delaying pleasure by a week. It doesn’t all have to be right now.
The Bottom Line
I know that some people might disagree with me on this because they will say that you just plow through no matter what with your debt. But I think that is the wrong mentality. We are taught to be consumers. We are taught that everybody has debt so we should just accept it! In my opinion, that is just dead wrong. Debt, in my opinion (and I mean any kind of debt) is suffocating. It dictates what you can and can do with your life. That is why I want people to pay it off. Free yourself from the shackles of debt. But you also have to live. You can’t just be in the debt tunnel forever. You have to have some fun. You have to have some life. So that is why rewarding yourself (again just a small reward) for meeting a debt goal is ok. I am not advocating you spend thousands or even hundreds of dollars. But treating yourself to dinner or a movie or taking a day trip with friends is not only good for your sanity, but will keep you motivated. You can pay off debt and make it to the end.