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Unsticking credit card repayments from the minimum: Advice, anchors and financial incentives

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  • Hendy, Patrick
  • Slonim, Robert
  • Atalay, Kadir

Abstract

A significant proportion of credit card users persistently make the minimum repayment on their debt. Using an online experiment, we study how behavioral factors (advice, anchoring, and financial incentives) affect minimum debt repayment behavior. Our results show that although information interventions (advice and anchoring) have significant nudging effects on increasing repayments, the interventions that combine information with financial incentives have the largest effect, roughly doubling the information effects. Our results show that advising individuals to make a higher repayment and offering a financial incentive has a significant impact on individual debt repayment decisions, and can thus substantially reduce future debt burden.

Suggested Citation

  • Hendy, Patrick & Slonim, Robert & Atalay, Kadir, 2021. "Unsticking credit card repayments from the minimum: Advice, anchors and financial incentives," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    • Handle: RePEc:eee:beexfi:v:30:y:2021:i:c:s2214635021000496
    DOI: 10.1016/j.jbef.2021.100505
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    2. Carton, F.L. & Xiong, H. & McCarthy, J.B., 2022. "Drivers of financial well-being in socio-economic deprived populations," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).

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    More about this item

    Keywords

    Anchoring; Advice; Credit cards; Consumer finance; Minimum payments;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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