1. What is that? (Referencing the Debt Snake prop).

• It is a Debt Snake. The idea comes from a book by David Covey.
• The average outstanding balance on a credit card is about $4000. So, every link represents $100 in debt.
• The objective is to Slay the Snake. So, the snake lives somewhere prominent in your house where you can see it every day. And then, every time you cut $100 from your credit card balance, you cut off a link.
• It is a prominent and visual reminder that can help you get the family onside. And it doesn’t have to be a snake. It could be a dragon.

2. There are lots of ways to try to get a handle on debt. Why this method?

• We’ve talked about behavioral economics before. There are certain approaches that work better because of how our brain is wired.
• Highlight opportunity for progress vs decline: Focus on the good news.
  • “Look, we got rid of two links this month, hooray for us” Vs.
  • “If you don’t pay off this debt, you will rot in the third circle of hell.
• Use immediate rewards:
  • Open credit card bill, you get to cut off a link. Not one day, some day, but right now.
• Use social incentives: Debt is hidden. No one knows you’re working on it. The snake makes it a bit more public. (Now, you can hide it when your mother-in-law comes over, but still).

3. You’ve got some new research that says people aren’t paying off their debts the “right” way. What did it find?

• People LOVE the phrase, “You’re doing wrong”. (eye roll). So patronizing. Instead, here’s a way you could be doing it better.
• The two most popular methods of paying off credit card debt are high rate and debt snowball. “High rate” is when you pay the minimums are everything, but focus on eliminating the debt with the highest rate to pay it off first. Debt “snowball” is when you pay off the one with the lowest balance to give you a psychological win.
• Preet Banerjee wrote an article which looked at new research from Warwick Business School in the UK. The researchers looked at data from 1.4 million individuals over a 2 year period. What they found was that people aren’t using either of those two methods. Instead, they are “balance matching”.

4. What does “balance matching” mean?

• If owe $4000, $3000 on one card and $1000 on a second card, and you have $400 for a payment, you’ll probably put $300 on the one card and $100 on the other, regardless of the interest rate.
• You don’t get the psychological benefit of the debt snowball.
• You don’t get the math benefit of high rate.
• So, instead of balance matching, pay the minimum on both cards, then devote the rest of the $400 to the card with the highest interest rate, or the lowest balance, depending on the method you choose.

5. What is a reasonable time frame to pay off your credit cards?