With the CARD Act, regulators pushed credit card issuers to disclose more information on their customer`s credit card statements in the effort to rally consumers into paying down their balances faster. New features that have been in place on electronic and paper statements alike include the amount of time it would take the consumer to pay off their outstanding balance by making only the minimum payment vs a shorter amount of time it would take to eliminate the debt if a larger sum was send in each month instead. Also clearly detailed is the total amount the consumer will wind up paying, factoring in the amount of both the total and the principal.
However, a Professor of Marketing at Boston College Carroll School of Management Kay Lemon, along with Assistant Professor Linda Salisbury released their findings of a recently-completed study which showed that consumers would be likely to put more money towards their outstanding credit card balance each month if their statements did not identify any minimum payment amount at all.
According to the survey, which included 481 American participants chosen at random, many respondents paid more – by as much as 24% – of their credit card bill when no mandatory minimum was presented. A minimum balance seems to function as a psychological constraint that prevents people from making the bigger payments necessary to unburden themselves of debt faster. Additionally, the additional information mandated under the CARD Act have little effect overall.
Other results of the survey found that increasing the minimum balance did result in consumers making larger payments, but only those within the group that had a tendency to make only minimum payments responded.
While the organizers of the survey did not go so far as to attempt to analyze the psychology behind their findings, Assistant Professor Linda Salisbury did speculate that perhaps showcasing the details of an individual`s debt causes them to have feelings of hopelessness about ever surmounting it instead of inciting them to take action to pay it down.