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The surprising reason why credit card debt sinks so many households

On Behalf of | Apr 21, 2017 | Debt Relief

Recently released data from the Federal Reserve reveals that the default mode of payment for most Americans remains their credit card.

Indeed, the Fed found that the total amount of credit card debt in the U.S. has now surpassed an astounding $1 trillion, marking the highest post-recession level. As if this wasn’t shocking enough, research has also shown that the average household carries a credit card balance of roughly $16,000.

While numbers like these would suggest that the majority of people are perhaps in over their head, unable to get their debt under control, a new study by a University of Pennsylvania researcher suggests that might not be the case. In fact, he found that a considerable number of people — anywhere from 9 to 20 percent — are in a position to regularly pay more than the minimum amount owed, but choose not to do so.

As to the reason for this, the author theorizes that it has nothing to do with stubbornness or even negligence on the part of borrowers, but rather a psychological phenomenon known simply as “anchoring.”

At its core, anchoring involves the notion that the mind subconsciously latches onto some piece of information that, in turn, directly influences the decision making process.

As far as credit cards are concerned, the author suggests that the information to which consumers are anchoring is the minimum payment amount, which is printed in bold in the middle of every monthly statement.

“It’s right in the dead center of every month’s account statement,” said the author. “I think a lot of consumers use that as a guide to influence their choices more strongly than they otherwise should.”

Even though certain disclosures concerning the reality of making only minimum payments were made mandatory by the Credit Card Accountability Responsibility and Disclosure Act of 2009, the author says this has not done enough to solve the problem. Indeed, he suggests credit card companies should be required to do more to educate consumers about minimum payments and repayment plans.

As fascinating as this is, it’s imperative for those who find themselves unable to manage their credit card debt — even struggling to make minimum payments — to understand that they have viable options for securing a fresh start.


Kingcade & Garcia | A Miami Law Firm