VSL:SCIENCE // Read this, save money

Minimum-payment requirements seem like a good idea: Without them, credit-card holders would pay too little and let balances bloom. But a new study indicates that many of us would pay more if our statements didn’t require a minimum.

The problem with minimum-payment requirements, the study found, is that they can lower a cardholder’s sense of what a reasonable payment is — an effect known as anchoring, which was especially strong among cardholders who usually paid more than the minimum but less than the total balance. A test group of such cardholders who got credit-card bills with $700 balances and no minimum-payment requirement paid an average of $280 — about 40 percent of the balance. A control group who received similar bills that included minimums, meanwhile, paid only $161, or 23 percent of the balance — a rate of payment that would have eventually cost them twice as much interest.

Minimum payments, then, are the cardholder’s enemy — and the creditor’s friend.

This post is from Observer Short List—an email of three favorite things from people you want to know. Sign up to receive OSL here.

Article continues below
More from Politics
Mayor Bill de Blasio.
After Meeting with Feds, de Blasio Vows ‘It Will Be Quite Clear’ He Acted Properly