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Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction

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  • Dean Karlan
  • Jonathan Zinman

Abstract

Mounting evidence suggests that behavioral factors depress wealth accumulation. Although much research and policy focuses on asset accumulation, for many households debt decumulation is more efficient. Yet the mass market for debt reduction services is thin. So we develop and pilot test Borrow Less Tomorrow (BoLT), a behavioral approach to debt reduction that combines a simple decision aid, social commitment, and reminders. Results from a sample of free tax-preparation clients with eligible debt in Tulsa (N=465) indicate strong demand for debt reduction: 41% of those offered BoLT used it to make a plan to accelerate debt repayment. Using random assignment to BoLT offers, we find weak evidence that the BoLT package offered reduces credit card debt.

Suggested Citation

  • Dean Karlan & Jonathan Zinman, 2012. "Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction," Working Papers, Center for Retirement Research at Boston College wp2012-17, Center for Retirement Research, revised May 2012.
    • Handle: RePEc:crr:crrwps:wp2012-17
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    File URL: http://crr.bc.edu/working-papers/borrow-less-tomorrow-behavioral-approaches-to-debt-reduction/
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    Cited by:

    1. Dean Karlan & Aishwarya Lakshmi Ratan & Jonathan Zinman, 2014. "Savings by and for the Poor: A Research Review and Agenda," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 36-78, March.
    2. repec:cup:judgdm:v:11:y:2016:i:1:p:48-61 is not listed on IDEAS
    3. Burke, Jeremy, 2021. "Do prize-linked incentives promote positive financial behavior? Evidence from a debt reduction intervention," Journal of Public Economics, Elsevier, vol. 204(C).
    4. Cardaci, Alberto, 2018. "Inequality, household debt and financial instability: An agent-based perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 434-458.
    5. Johanna Peetz & Melanie Simmons & Jingwen Chen & Roger Buehler, 2016. "Predictions on the go: Prevalence of spontaneous spending predictions," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 11(1), pages 48-61, January.
    6. Laura Derksen & Jason Kerwin & Natalia Ordaz Reynoso & Olivier Sterck, 2021. "Appointments: A More Effective Commitment Device for Health Behaviors," Papers 2110.06876, arXiv.org.
    7. Dean Karlan, Aishwarya Lakshmi Ratan, Jonathan Zinman, 2013. "Savings by and for the Poor: A Research Review and Agenda-Working Paper 346," Working Papers 346, Center for Global Development.
    8. Piotr Bialowolski & Dorota Weziak-Bialowolska & Eileen McNeely, 2021. "The Role of Financial Fragility and Financial Control for Well-Being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 155(3), pages 1137-1157, June.
    9. 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).

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