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The Urban Institute did a study of credit card users within the United States and found that almost half are revolvers, which means they have an unpaid balance on their credit card month after the following month. This is a widespread habit that is easy to commit and can cost you rapidly.
It was a non-blind study Participants were chosen randomly and did not have any idea they were part of the study Researchers could only see the data anonymously about the use of credit cards by participants and their debt. Around 14,000 members of Arizona Federal Credit Union participated and the study was funded with the help of the CFPB.
Debt from credit cards has steadily increased in the past few years, with an average US household owing $5,700 of credit card debt. There are around 133 million of us who have a balance that is at or above one credit card. The goal of this study was to establish if regular reminders regarding money-related “rules of thumb” can aid individuals in paying off their balances on credit cards.
Researchers used these logans/rules:
“Don’t take out the small things. Cash is only used when it’s less than $20.”
“Credit continues to charge. It adds around 20% to your total.”
The messages were distributed randomly to participants who were blind by mail twice a month (in the subject line) via an ad banner that was displayed on the bank’s website; and via a fridge magnet calendar, with the rules of thumbs posted. A group of control participants received no messages.
The Outcome:
The first rule led to the balance on credit cards being two percent lower than it would have been before the intervention.
The second rule didn’t produce a significant difference across all participants.
However, certain small groups of participants, such as those who are younger than 40 had outcomes. In those cases, the revolving debt ratio was $160 less than the second rule and $173 less than the first rule.
Overall, the study had “moderate” effects, at an affordable cost of about 50 cents for each person.
This study shows that when considering the cost-effectiveness of implementing, employing the rules of thumb is an effective way to provide financial education and assistance to improve the health of your finances and paying habits.
If you’re experiencing credit card indebtedness…
Find out the amount of time it takes to pay off the remaining balance.
If you have a balance on a high-interest card, and you’ve got high credit history, you might be eligible to apply for a promotional, zero percent interest account for transfers (usually an 18 to 9-month period of promotional time). For those who are eligible, this allows them time to settle their debt without accruing massive interest.
Set auto payments through your bank account. This ensures that you never forget to pay the bill.
If you are required to keep a balance, you should try to keep it at a level below 7 to 10 percent of the amount.
With the latest trends in data on credit cards being used by banks to assess risk in mortgage applications and prices, it’s crucial for those who plan to get a mortgage in the next two years, to ensure that their balances are lower. It is important for prospective applicants to limit their revolving balances in the time before they apply for a loan to ensure they get the most competitive price.
If you have any concerns about managing your credit score or want us to look over your credit report, contact one of our experts in credit to get a no-cost credit report.
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