A new study conducted by a British professor at the University of Warwick indicates that the amount a person pays toward their credit card bill is significantly influenced by the bill’s suggested minimum payment, causing consumers who typically only pay a portion of their bill to hold on to their debts longer and pay more overall (“Customers’ Fixation On Minimum Payments Drives Up Credit Card Bills,” ScienceDaily, Oct. 8, 2008).

In his report “The Cost of Anchoring on Credit-Card Minimum Payments,” Dr. Neil Stewart found that the psychological phenomenon of “anchoring” — when arbitrary and irrelevant numbers bias people’s judgments — can take affect when consumers are presented with a minimum payment amount on their credit card bill.

While the majority of consumers surveyed about their credit card payment habits said they repaid their bills in full each month, regardless of their suggested minimum payments, 36 percent of the consumers surveyed indicted they are swayed by the suggested payment amounts..

These consumers make only partial credit card payments — payments higher than the suggested minimum, but not enough to cover the balance. In these instances, Stewart found, the amount they paid toward their bill was “closely correlated” with their bill’s suggested minimum payment — “the lower the required payment, the lower the actual payment made.”

Stewart explains, when minimum payments influence consumers to make lower payments on their bills, their interest charges increase as does the length of time it takes consumers to pay off their debt, costing them double the amount of interest over the lifetime of the debt.

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