Do credit card minimum payments make people pay less than they might otherwise?
New research by the University of Warwick reveals that many credit card customers become fixated on the level of minimum payments given on credit card bills. The mere presence of a minimum payment is enough to reduce the actual amount many people choose to pay on their bills, leading to further interest payments.
The research, by University of Warwick Psychology researcher Dr Neil Stewart, is to be published in the journal Psychological Science, in a paper entitled “The Cost of Anchoring on Credit Card Minimum Payments”. It focuses on the psychological phenomenon of “anchoring” in which arbitrary and irrelevant numbers bias people’s judgements. The research reveals that anchoring affects the way people repay their credit card bills. For those people who make only partial repayments of the outstanding balance (about 35% of card holders), the suggested minimum payment on the credit card statement acts as an anchor and lowers the actual repayments people choose to make.
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