The Economist reports that credit card companies are a whole lot smarter than I gave them credit for:
Since minimum payments on credit-card statements are usually small amounts, Mr Stewart wondered whether seeing an actual amount might make people pay less than they would otherwise have done. That is exactly what he found.
Click here to find out more!Mr Stewart presented 413 people with mock credit-card bills of £435.76 (about $650) that were identical—except that only half mentioned a minimum payment of £5.42. Participants were asked how much they would pay.
Among those inclined to pay the bill in full, the presence of the minimum payment hardly made any difference. However, those who wanted to pay just part of it handed over 43% less on average when presented with a minimum payment. In the real world, this would roughly double interest charges.
By anchoring people’s choice at a low value the companies ensure people pay less than they would if they anchored from the full amount due. They thus end up paying more in interest and generating more revenue for the company. So next time you look at your CC bill, maybe look at the total bill and not the minimum to save yourself a few pennies.
ht: Freakonomics
1 comment
8 pings
Matt Nolan says:
December 18, 2008 at 7:27 pm (UTC 12 )
Good to hear
I always pay mine off completely anyway, so I won’t be taking your advice
Credit card companies are smart | TVHE | definedebt.com says:
December 18, 2008 at 7:30 am (UTC 12 )
[...] The rest is [...]
Credit card companies are smart | TVHE-Debitcard & Creditcard News says:
December 18, 2008 at 7:37 am (UTC 12 )
[...] Originally posted here: Credit card companies are smart | TVHE [...]
PremiumSecret.com - Credit card companies are smart | TVHE says:
December 18, 2008 at 8:27 am (UTC 12 )
[...] Original post: Credit card companies are smart | TVHE [...]
Money news blog » Credit card companies are smart | TVHE says:
December 18, 2008 at 10:37 am (UTC 12 )
[...] Read more: Credit card companies are smart | TVHE [...]
How can I make some extra money online if I am not a US or Canadian Citizen and I do not have a credit card? | Make Money Online says:
December 18, 2008 at 2:08 pm (UTC 12 )
[...] Credit card companies are s&… [...]
Credit card companies are smart | TVHE | feelbettercard.com says:
December 18, 2008 at 2:18 pm (UTC 12 )
[...] See the rest [...]
Credit Card Rebates - Finding the Right Card | Lunatic Offers says:
December 22, 2008 at 10:40 am (UTC 12 )
[...] Credit card companies are smart | TVHE [...]
I need money to advertise my site, what’s an online way to make money without a credit card? | Make Money Online says:
January 11, 2009 at 12:58 pm (UTC 12 )
[...] Credit card companies are smart | TVHE [...]