Eliminating Debt (Psychological vs. Financial)

Is one way better than another to get rid of debt? The answer to your question will likely differ depending on who you’re asking.

“FINANCIAL” METHOD. Nearly every ‘financial’ person will advise that debts should be paid off in a particular order: start with highest interest rate and move to the lowest interest rate (done by rolling the payment from one debt to another as debts are paid off). While this method makes perfect sense from a mathematical point of view, more and more people are finding that there is another method [often overlooked] that works better on their psyche ...

PSYCHOLOGICAL METHOD. This system of debt repayment, often referred to as the “debt snowball,” organizes one’s debt from the smallest balance to the largest balance. This method is not likely to save the most money or time (as the interest rates are not likely to align in that manner), but many find this approach very empowering and motivating because they see progress quickly. Focusing on the smallest balance first will accomplish this end.

In both of these methods, pay the minimum amount on all debts except for the “focus” debt (smallest balance in psychological method; highest interest rate in financial method); pay as much as possible on the focus debt until it is eliminated and then approach the next debt in the list with similar intensity.

I’m not arguing against the merits of the financial method as outlined above. Obviously, if someone has the discipline to adhere to the plan, you’ll save the most time and the most in interest expenses. The psychological method merely takes a seemingly more “human” approach to finances that suggests that people will be more likely to stick with their ‘financial diet’ if they see some ‘debt pounds’ come off quickly … that is what Personal Finance is all about – doing what works best for you (which very well may be something different than the next person). After all, the point is getting out of debt [the end]; don't get caught up in the means to the end. How you decide to do it is much less important than doing it.

Check out the following Excel spreadsheet if you want to play around with the different methods …

Negotiating a Lower CC Rate

There have apparently been some 'issues' with registration for the 1-credit Financial Success class. They should [hopefully] be resolved now - there are no prerequisites or requirements for class entry. More info below ...

Negotiating a lower credit card rate:
Any “get out of debt” strategies/plans you come across will consistently tell you to lower your credit card rates. Obviously this is good advice and a no-brainer strategy – if I can repay my credit card debt at 10% instead of 20%, I’ll be better off. What most of these plans leave out is how you go about getting a lower rate on your credit card. Let me share some ideas with you if you find yourself in a high rate CC situation.

1. Call your credit card company and ask for a lower rate. Most have lower rates available to good customers (customers paying on time every month), but they don't volunteer the information ... you have to ask. This is likely to work if your high rate was the result of a missed payment and not a long-term problem.
2. If your card refuses to give you a lower rate, find one that will. Do some homework – there are over 30,000 credit cards out there. In this highly competitive industry, if someone won’t treat you the way you deserve, someone else will. A few websites to search for no-fee, low rate cards [assuming you haven’t already gotten several acceptable offers in the mail] include:
- CardRatings.com
- CardWeb.com
- CreditCards.com
- Index.Credit.Cards

After you’ve done your homework, contact your company to inform them of your offer. Being specific is important, because an offer in hand will create leverage for you. Let them know that you wanted them to have the opportunity to match the competitors offer before you transferred your balance. Ask to speak with a supervisor if necessary. Click here for a sample script.
3. Be prepared to switch. If what you’ve tried to this point hasn’t worked, consider switching to a card that is more interested in your business [willing to work with you]. If you have a card without a balance, call that company first to see if they have a balance transfer special prior to opening a new account.

Call confidently – a 2002 study found that more than half of the people [from a wide variety of credit situations] that called to request a lower credit card rate were granted their request – from an average starting rate of 16% to a lowered rate of 10.47%. I met with a student this afternoon and we talked about her credit card rate and tactics she could explore to try to lower her rate. All of these things above were discussed – the source of these three suggestions to negotiating with your CC …? AMERICAN EXPRESS!


Seats in the 1-Credit courses for spring are filling quickly ...
Financial Survival -- FIN PLN 1183 (Ref #43500) - (68 seats left)
Financial Success -- FIN PLN 4318 (Ref #43587) - (117 seats left)

The "award winning" Financial Tip of the Week is a service of ...
University of Missouri-Columbia
College of Human Environmental Sciences
Department of Personal Financial Planning
Office for Financial Success
Dr. Mark Oleson - OFS Director

Successful Models in Financial Education

As I sit here in a hotel room in Washington D.C. contemplating what to write about in this week's tip, I think I'll take the opportunity to toot our horn a little bit ...

Since arriving at the University of Missouri about 15 months ago, the Personal Financial Planning Department has been supportive of just about everything I've wanted to do in starting/operating the Office for Financial Success. We've had many rewarding successes along the way - today among those. I was very honored to be invited to D.C. by Freddie Mac to receive two awards that provide national validation to the good things being done at MU.

2006 Successful Models in Financial Education Awards:
Freddie Mac today announced their 2006 successful models within four financial education categories. The OFS was proud to be recognized in two of the four!

* Successful Outreach and Marketing Efforts for Financial Education.
We received the top recognition in this category for our Financial Tip of the Week. Time has only increased the popularity/readership of the tip; the new conversion to a weekly blog has been popular as well.
* Successful Tools or Resources Used in Financial Education Initatives.
We were runner up in this category for our Financial Survival course for college students. The unique 1-credit pass/fail Financial Success course that hasn't even been offered yet (next semester will be the first offering) is already receiving attention.

Seats in the 1-Credit pass/fail courses are filling quickly ...
Financial Survival -- FIN PLN 1183 (Ref #43500) - (<100 seats left)
Financial Success -- FIN PLN 4318 (Topics) (Ref #43587)


The "award winning" Financial Tip of the Week is a service of ...
University of Missouri-Columbia
College of Human Environmental Sciences
Department of Personal Financial Planning
Office for Financial Success
Dr. Mark Oleson - OFS Director

Personal Finance - Educational Resources

It is amazing the amount of resources available in the area of Personal Finance. Some resources are stellar, some are poor, and a whole lot fall in between. My objective this week is to expose you to some of these resources [the better ones]. Keep in mind that this is not an endorsement for any of them – my hope is that you’ll be able to find some that will be beneficial to you [as a teacher, a parent, a student, or whatever situation you find yourself in]. You will find that some of the resources are geared toward beginners; others are geared toward individuals that have a good understanding of beginning personal finance principles … all of these resources [at least the basic information] are available at no cost. This should not be considered an exhaustive list of resources, merely a broad brush stroke. Here are a dozen different resources covering various aspects of personal finance:

* Checkbook Basics
* FDIC - Money Smart
* Florida State - Fundamentals of Financial Planning
* Freddie Mac - Credit Smarts
* MoneySKILL
* MU Extension - Info Sheets
* My Money
* NEFE - Get Smart About Your Money
* NEFE - High School Financial Planning Program
* Practical Money Skills for Life
* Rutgers - Investing for your Future
* Smart Money - Investing 101

The Financial Tip of the Week is a service of:
University of Missouri-Columbia
College of Human Environmental Sciences
Department of Personal Financial Planning
Office for Financial Success
Dr. Mark Oleson - OFS Director