The Principle of Anchor Management

In marketing, there is something called “anchoring” that is associated with just about every commercial advertisement you’ll ever see.  The premise is easy to understand, but not so easy to overcome.  Advertising agencies are paid millions of dollars to develop an approach to the marketplace that will appeal to you, the target.  In most cases that approach attempts to push your buttons or play on your emotions.

This is how it works, especially during the holiday season.  You see an ad on TV, hear one on the radio, or see one in print.  The purpose of that ad is to arouse a positive emotion in your mind and then, during the peak of that emotion, flash an image of whatever product is being advertised.  In doing this, marketers intend to link that positive emotion to the product they’re being paid to develop the ad for.  In addition, you’re kind of hypnotized that if you don’t act accordingly, you’ll experience that sense of lack I mentioned.  The result is that you’re left with the hope of gain (to act as they prefer) or sense of loss (if you don’t act as they prefer).  Couple this with the bombardment of ads, and you have a mild case of hypnosis happening.  Either ay, you’re motivated, if not inspired, to go out and spend at almost any cost.

I remember when I got my first credit card decades ago.  I felt so proud to use it.  It made me feel accepted (have you ever heard the word accepted used in credit card advertising before?).  It made me feel like I was somebody.  Credit cards have a way of making the untrained mind feel a sense of value (almost fantasy) just to have them in your wallet.  The ads promoting them create a sense of freedom that can be experienced only by using those little plastic parasites.  But I carried them around and used them in complete ignorance, believing they made me someone I hoped to be.

But then, something interesting happened.  After using those cards for a few months, I began to notice something on those little letters you get from the credit card companies each month (called statements).  What I began to pay more attention to as the months went by was the information on each of those statements.  And that’s when the fantasy began to wear off.

You need to break that anchor by taking the emotions and ideas of the fantasy associated with use of debt and credit and replace them with the financial reality they create.  You need to do some Anchor Management.

How Anchor Management Works
Take out the statements for all debt accounts you have.  For any credit card accounts, you’ll also need the actual card.  (If you’re also employing The Family That Pays Together Stays Together Rule, family members should also be present for this exercise.)  Lay each statement on a table, like your kitchen table, and take not of the amount of your current payment and its associated proportion of interest.  For mortgage and car payments, this information may not be present on the statement.  If they aren’t, then you may need to get yourself some kind of financial calculator that can create amortization tables.  Those tables will show you how much of your current payment is being applied toward interest and how much is being applied toward principal.

When it comes to a mortgage, during the first few years more than 90 percent of your payment is being applied toward interest alone.  For example, if your mortgage payment is $1000, it’s possible that $900 of that payment is interest only.  That means you’re paying $900 a month to use $100 of the money you’ve borrowed.  Regarding car payments, the amortization tables will most likely involve far fewer years and, as a result, more of your payment will be applied toward principal (about a 65 percent interest/35 percent principal split in the beginning).  But that’s still a lot of money being paid directly toward interest.

But mortgages and car payments are static situations, as I mentioned in an earlier chapter.  Credit cards are a different story.  You carry them around in your wallet and the temptation to use them is one you must overcome daily.  So, in order to win that battle, Anchor Management will require you to get out not only the statement for each card, but also the cards themselves.  Place them on the statements you received (each card on its associated statement), and then stare at the card, the statement, the interest, the balance, and the payment.  Do this until you link the financial reality that using each card creates to the card itself.

This should break the anchor that exists between the card and the false sense of fantasy you’ve been hypnotized by.  You should feel like you never want to see that card again.  When you feel that way you just may stop using it.  And that’s the whole point here.


  • Eula T. Blevins

    Reply Reply May 22, 2013

    Amy has an outstanding balance of $2,000.00 on a credit card with an 18% interest rate. Her minimum payment is $10.00 or 2% of the balance, whichever is greater. Amy’s minimum payment would initially be $40.00 (2% of $2,000).

  • Issac Cross

    Reply Reply June 5, 2013

    One common term for consolidating credit card debt is balance transfer. In effect, the balance from one or more of your credit cards is transferred to another card. This can happen when you open a whole new credit card account and then transfer existing balances to the new card or by transferring other existing balances onto another existing open account. Either way, the logic is that you shouldn’t be paying higher interest rates on multiple accounts when you could pay a lower interest rate on one card.

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