Does Budget Software Really Help You Get Out of Debt?

Does Budget Software Really Help You Get Out of Debt?

Since the introduction of the Credit CARD Act, credit card companies provide more and more information and tools designed to help customers get out of debt.

For instance, Chase Blueprint lets you itemize charges and pay off certain items first after you set your desired payment or the length of time you want to pay it off. In essence, you’re treating the credit card as a type of installment loan.

There are no ramifications if you fail to make these payments, as long as you continue making the minimum payments required by the bank. There is a sense of achievement when you pay off the specific balance, though, and it may help to keep it in your mind exactly what you purchased.

For me, knowing I’m paying off a specific purchase — rather than paying for long-forgotten items bought on impulse — provides motivation to make those payments.

Finance Charge Charts

Every credit card issuer, by law, must now disclose how long it will take you to pay off your current balance — and how much you’ll pay in interest over that time — if you make only the minimum payment. For many people, this results in disturbing statements like, “If you make only the minimum payment, it will take you 243 years to pay off your current balance, and you will pay $6 zillion in finance charges.”

But do these statements really encourage people to pay off their debt — or do they have the opposite effect?

In the book Buyology by Martin Seideman, researchers discovered that the warning statements on cigarette packages actually triggered the sections of the brain that cause nicotine cravings. The worse the warning, the worse the craving. (So, the simple statement “Cigarettes kill,” would make some people want a cigarette more than warnings about the effects of smoking during pregnancy on unborn children.) Could the same thing happen in the brains of those with a shopping addiction when they see just how far in debt they are? No one has researched this yet, but it’s a possibility given what we know about human psychology.

Fortunately, there are other tools consumers can use to help get out of debt, as well.

Mint.com’s Goal-Tracking Function

Mint.com recently introduced a function that permits users to set savings goals, link them to specific accounts, and then save a specific amount of dollars toward a goal each month. When you achieve your goal, a friendly little congratulations message pops up.

It’s well-documented that positive reinforcement works better than pointing out the negative (punishment) as motivation for achievement. Even these little automated messages trigger a sense of accomplishment.

Budgeting and Finance Apps

There are a number of apps designed to help you manage your finances. CreditShout’s Kevin Fleming highlights CreditShout’s top three iPhone apps for managing your credit cards and budget in this post.

Having all your finance information on your iPhone makes it easier to check account balances on the go — giving you a better handle on your finances — and also can help you track spending better while you think of it, when you’re actually in the store spending money.

How Budgeting Sites Can Help You

iPhone apps and websites like Mint.com or CreditSesame.com can show you better offers if you plan to initiate a balance transfer for a lower interest rate. If you weren’t considering a balance transfer, seeing this information, along with how much money you could save with a balance transfer, could get you thinking about it.

And, of course, payment reminders can save you money on late fees, higher interest rates and finance charges — all benefits of using a budgeting program to track your finances. Most importantly, these program help you keep your money in the forefront of your mind — presumably so you’ll be a more careful spender, pay your bills on time, and, yes, pay down your debt faster.

Of course, it’s just as easy to ignore the programs the same way people ignore the growing balances on their credit cards.

So it Comes Down to This:

Tools can help you achieve your financial goals with psychological incentives and easy ways to track your money and remember to make credit card payments. But in the end, the only one who can make the decision of whether to pay down your credit cards or go shopping is you.

What about you, readers? Have you decreased your debt with the help of budgeting programs?

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