Americans have over $770 billion dollars in credit card debt and frequently manage debts across multiple cards. This Journal of Marketing study examines how the minimum required payment each month affects credit card debt repayment decisions across multiple cards. The study finds that minimum payments lead consumers to spread repayments more evenly across the accounts, termed the dispersion effect of minimum payments. As a result of the dispersion effect, consumers repay less money to their highest interest rate debt and pay more interest overall.
The study has implications for policy makers, consumer advocates, and firms working to improve consumer financial well-being. First, when policy makers revise requirements for credit card statements, study results suggest it is important to test whether consumers interpret the changes in ways that might not be intended. Second, the study discusses opportunities to help consumers reduce interest costs by adjusting the display of credit card account information and aggregation. Finally, the study has implications for how financial well-being is measured and tracked by firms and consumer advocates.
Featured Speakers: Samuel D. Hirshman (Norwegian School of Economics) and Abigail B. Sussman (University of Chicago)
Full Journal of Marketing article: https://doi.org/10.1177/00222429211047237
Read the Scholarly Insight for this study here.