The debt doldrums: how to manage a single large debt

Mountain wall

Do you have a really big debt? I do. It’s called my mortgage.

Last year, I was able to successfully pay down my mortgage such that my loan-to-value ratio (essentially, the percentage of how much I owed on my home) hit 80%.

There was a clear benefit to getting down to 80%, as that is the threshold where you can start to pester your mortgage company about getting rid of PMI (a project that I serialized in five parts: part 1, part 2, part 3, part 4, and part 5). And once PMI is gone, you can put that money toward your mortgage premium, paying it off faster, in a kind of debt snowball.

So that’s the benefit of getting to the 80% milestone. What’s the next milestone?

It turns out, sadly, that there really isn’t another intermediate one.

This is a problem regardless of mortgages. You might have a single large debt (say, student loans) that towers over all your other debts. It might even be your only debt. You want to stay motivated to pay it off, but it’s Just. So. Big.

How do you stay motivated to pay it off?

A note on positive reinforcement

I believe that one of the most powerful ways to be able to pay off debt is through positive reinforcement. When you feel like you’re making progress, that your hard work is doing something, it’s much easier to keep going.

That’s why I’m such a big fan of the “debt snowball“, where you pay off your debts smallest to largest (regardless of interest rate), so that you can see some quick wins. When you pay off a debt and have one fewer payment, it makes you feel like you can do this.

But what if you already have just one payment? There are plenty of people out there with no credit cards, no car payments, no debt of any kind at all…except a single $50,000 student loan.

The debt snowball doesn’t really apply in this case. What then?

First of all, let’s acknowledge that this is tough situation to be in. Debt is difficult enough to deal with, psychologically, even without such a large mountain in front of you.

And while there are no real shortcuts here, you’ll need to employ psychological tricks here in order to get an extra boost of motivation.

1a. Focus on payoff milestones

If you have $50,000 in student loans, don’t focus on the point at which you’l hit $0. That will overwhelm you and make you feel demotivated.

READ MORE:  Five reasons why you can't afford to buy a home

Instead, focus on working toward your next (say) $10,000. Pretend your debt balance is like an odometer. It’s pretty cool to see a new digit turn, isn’t it?

1b. Focus on percentage milestones

This is similar to the above, but might work better for mortgages, where the amounts are larger and there’s a fixed payoff amount. So focus on planning and getting toward your next 10%. So if you’re at 80%, plan for how you’re going to get to 70%. Don’t think beyond that. 10% percentage points at a time.

2. Celebrate these milestones

It’s not just enough to focus on the milestones. You need to celebrate them when you hit them. So, as an idea, tell your friends that once you make it down to, say $25,000 worth of debt, you’re going to do some sort of celebration. (Getting other people involved can help with accountability.)

3. Set and forget

If you do any hiking, you know that sometimes, the trail is just long and hard. So instead of counting the miles, you just cast your head down, put one foot in front of the other, and just keep going.

The same is true for large debts. Set and automate your payments, based on as much as you can possibly spare (because even a little extra each month will make a difference in the long run), and then once you’ve figured out a plan, don’t think about it anymore. Your plan will continue to work in the background.

My plan

As for me, I’m going to focus on getting to 70% LTV. I’m calculating that I can get there in a little over a year, though I might have to up my payments a bit to stay on track.

And as for you, remember that old saying: “How do you eat an elephant?

The answer is, of course, “why the hell would want to eat an elephant?

Okay, maybe that’s not so relevant after all. But still, stay focused and you’ll make progress. It’s worth it.

But enough about me. How do you stay focused when faced with a large debt?

Comments are closed.