'Repayment-by-Purchase' Helps Consumers to Reduce Credit Card Debt

Many consumers struggle to repay their credit card debt, in part because paying small portions of large bills often feels fruitless. We introduce a novel credit card payment option – repayment-by-purchase – and examine its influence on both the amount consumers’ repay and their perception of progress toward reducing their debt. With typical repayment, consumers simply enter the amount they wish to pay toward their total balance – often the minimum required payment. With repayment-by-purchase, in contrast, consumers can select specific purchases (e.g., a coffee at Starbucks, a utility bill) that they wish to repay, and make payments specifically directed toward “eliminating” these purchases. Five studies reveal that repayment-by-purchase increases awareness of what is being repaid, which increases perceptions of progress toward reducing debt, which in turn encourages higher repayment. In a large field experiment, credit card customers who were given the opportunity to allocate their payment toward specific purchase categories paid 12.18% more toward their debt balance than a control group. These findings advance our practical understanding of how consumers can be encouraged to pay more toward credit card debt and offer conceptual insight into how both increased awareness and perceived goal progress enhance consumer motivation to get out of debt.