Helping Consumers Get Out of Debt Faster: How Debt Repayment Strategies Affect Motivation to Repay Debt
Authors: Remi Trudel, Keri Kettle, and Gerald Haubl
The US Federal Reserve estimates that US consumers have $791 billion in revolving debt, 98% of which is credit card debt. It is clear that consumer debt is a problem. Moreover, consumers with problematic levels of debt—i.e., those of greatest concern—tend to have their financial liabilities distributed across multiple debt accounts. Consumers with multiple debts can choose among different strategies for paying down their debt accounts. In particular, they can repay their accounts sequentially (one at a time) or simultaneously (allocating money to each account). We believe that there is a consequence to this decision and examine how the order in which debt is repaid influences the motivation of consumers to pay off their debts. Across 4 experimental studies, we demonstrate that paying down debt accounts sequentially (versus simultaneously) increases the motivation of low self-control consumers—precisely those who have difficulty achieving long-term goals (Baumeister et al. 2007) and are most likely to have debt in the first place (Meier & Sprenger 2012). This effect persists whether the strategy is chosen or assigned, is strengthened by expert recommendation, and is moderated by the attainability of getting out of debt. The results are compelling and have important public policy implications.