The secret to paying off credit card debt

Facing even more debt after the holidays? New UAlberta research reveals a proven way to pay it off.


January’s post-holiday crash landing is that much harder for more than 50 per cent of Albertans who face an average $27,000 of credit card debt.

Forget turning to generic-advice driven books for help—for the first time ever, there’s a scientifically proven approach for the most motivating way to pay off credit card debt, thanks to research out of the Alberta School of Business.

“We’ve shown that you’ll have more success if you focus on paying off the smallest credit card first rather than applying an equal amount of repayment across multiple debts,” said marketing expert Gerald Häubl, who led the research study. “This is the first rigorous examination of the actual psychological forces that come into the motivation to repay debt.”

The finding runs counter to conventional wisdom that states how much repayment we apply or even how little is left on a card is the most motivating force, said Häubl. Rather, it’s what portion of the balance you succeed in paying off that will help you get out of debt quicker.

How it works

Häubl and University of Alberta colleagues Keri Kettle, Rémi Trudel and Simon Blanchard used tightly controlled experiments and the credit data of 6,000 Americans to arrive at their finding.

Their Journal of Consumer Research study showed that consumers who concentrated their repayment on one of their several accounts paid down their credit card debt 15 per cent faster than those who paid back equal amounts to all their accounts.

“The task of achieving major goals can be overwhelming and sometimes demotivating,” explained Häubl. “By focusing on easily observable markers of progress—for example, a smaller amount of debt—it’s easier to maintain a positive mindset.”

This discovery is applicable to any goal-setting activity, he added. For example, if you set a high weight loss goal, you’ll be more likely to get there quicker if you focus on achieving smaller sub-goals such as immediately reducing daily energy intake by 150 calories.

Bottom-line advice

“Unless it’s possible to consolidate your credit card debts at a substantially lower interest rate, you may be better off tackling one credit card at a time, starting with the smallest debt first,” said Häubl.

“Canadians don’t have to feel overwhelmed by debt if they focus on small victories. Sometimes just getting started on repaying debt is half the battle.”