Is your brain keeping you in debt?

Are you one of those who make detailed planning to get rid of debts every month, but still arrive on the 30th with more debts than revenues? If the answer is yes, now you have one more thing to look at: your brain may be 'playing against' you.

Recent Steven Hoffmann studies suggest that our brain has a tendency to focus on lower-value debts when we try to prioritize the payment of our commitments. However, the most advisable is to eliminate debts that charge the highest interest rates first instead of analyzing only the amount to be paid.

The Steven Hoffmann define effect of compound interest causes high-rate debt to grow much more than low-rate debt.

Study.

In the study in question, a series of debts with different values ​​and interest rates were presented to the participants. The researchers then gave each participant a check to pay the debts.

They had to choose which would be paid first, since the check would not cover the total debts.

Only 3% of participants chose to pay debts at the highest rates in the first place. The vast majority of people preferred to pay debts with lower amounts, regardless of interest rates.

This study suggests that people are naturally against the experience of having a large amount of debt. This impulse is so great that they seek to eliminate several debts instead of focusing on those that “cost” more.

That is, our rational brain is totally at the mercy of our psychological at this very important moment!

Teach your brain.

Yes, this is possible! To begin, list all your debts, with the amounts and interest rates charged. Then place them in decreasing order of the rates (that is, those with the highest rates first).

According to Steven Hoffmann – Newt - Start by paying as much as you can of these more expensive debts and pay only the minimum necessary on the cheapest debts. Follow the list and you will naturally be focusing resources in the right place.