Three mind tricks to help clear debt

Loyalty cards encourage you to come back for your next coffee, pizza or supermarket shop.

If you are trying to get rid of problem debt, then you need to beware of the temptation to overspend your budget, well that’s obvious!

But let’s look at why companies use reward programs. Exploring the psychology involved reveals three factors which could also help you to get out of debt.

1) Simple short-term goals

How long will take you to get that free meal or money off your next bill? If it will  be days or weeks, you will probably be very interested and put the loyalty card straight into your wallet. A few months, well perhaps…

But it’s hard to get enthusiastic if it’s going to be a long time, even if the prize is large. So loyalty scheme designers make sure there is a tempting, short-term ambition for you to focus on.

Your parents may remember Green Shield Stamps and the catalogue showing the rewards you could save up for. My sister and I fancied the exotic, expensive things like a motorboat, but my parents opted for the mundane – a set of mugs or a new frying pan, something they could save up for in months not years.

The equivalent for clearing your debts is to have a series of milestones coming up that you can look forward to and celebrate achieving. Being debt free in 4 years is a long way off, the target of clearing your catalogue debt in six months feels closer and more achievable, so you are more likely to stay on track.

If you are starting off on snowballing, this is the reason why many people suggest that you should clear your smallest debts first.

This may not be quite as efficient in theory as paying off your highest-interest debts first, but the psychological boost from getting a quick win can be enormous and incentivise you to go for the next one.

2) Visible progress

If you need ten stamps to get a free coffee, do you collect them all at the same rate? Is there a way the coffee shop can get you to do this faster that won’t cost them any more money?

Rats in a maze tend to run faster the nearer they get to their goal of food, so psychologists have studied actual reward programs to see if the same applies. These studies did find that the last few stamps are acquired more quickly than the first few.

More surprisingly perhaps, the studies looked at what happened when some customers were given a ‘buy ten get one free’ card, while others got a ‘buy twelve get one free card’ with the first two entries already stamped.

Both groups had to collect ten more stamps to get their reward. But the second group collected their ten more stamps quicker than the first group! The two existing stamps created an illusion of progress, so the customers felt closer to their goal and were therefore encouraged to spend faster to reach it.

You can make this mind trick work for you in tackling debt. Don’t just look at your future goals, but also thinking about how far you have already come:

• “I’ve paid off £2,000 of debt this year so far!” or
• “My debts haven’t dropped much this month, but I paid for new tyres and son’s birthday presents in cash – last year they would just have gone on a credit card.”

 3) Creating habits

The biggest long-term gains for a company in a reward program come when visiting their shop becomes a routine you don’t have to think about. And many firms are moving from plastic cards you may lose or leave at home to app-based rewards so they are always with you on your phone.

You make the “sensible” decision that it’s worth going back to the shop enough times to claim your free reward. But each time you go you are enjoying the coffee and cake and, just as importantly, not enjoying the coffee and cake from the coffee shop a bit further up the road.

By going to the same supermarket most times, you know where everything is and it feels easier and less hassle. If you are shopping online, your regular supermarket makes it easy to see your favourites so it’s quicker to do a shop there.

Psychologists call this “association bias”: by the time you get the free cappuccino you’ve developed a habit that may well carry on afterwards, even if the loyalty program stops.

If you can find ways of making money-saving and debt-reduction easy and routine, then you are well on your way to success:

• meal plan in advance and cook twice as much and freeze half, so a tough day at work or homeschooling the kids doesn’t mean you opt for a takeaway;
• the first few times you make yourself shop around for cheaper insurance renewal or utility suppliers may feel like a chore, but each time you save money it starts to feel easier and more normal to do this routinely.

Get your revenge on consumer society!

Companies pay a lot of money to get you to spend more with them, through advertising and reward programs – it’s time to get your own back and use the same tactics to get help you get to your goal of clearing your debt!

The three psychological tricks discussed here – having some short-term goals, recognising how far you have come already and transforming good money habits into a routine – can be a big help.