The Credit CARD Act of 2009 has been very effective in driving down many fees, but is failing to make much progress with another of its goals: to persuade consumers to pay down their balances faster. Those are among the key findings of a new study recently published by New York University’s Leonard N. Stern School of Business.

Credit cards and interest

The act requires credit card companies to prominently publish on monthly statements a box that shows how much interest could be saved if the consumer were to make more than the minimum payment. The requirement has had a slightly positive effect, but the number of cardholders who actively responded to being nudged in this way was disappointingly small: After the regulation was implemented, the proportion of cardholders who changed their monthly payments so as to eliminate their balances over 36 months rose by only about 0.5 percentage points. However, given that the cost of implementing the requirement was close to zero, the researchers still judged it worthwhile.

Those who increased their payments so as to pay down balances completely over 36 months saved on average about $24 a year in interest. Obviously, reducing balances more quickly would result in far greater savings.

Paying down credit card debt

If you want to come up with an affordable strategy for paying down the debt on your plastic, you might find the online credit card calculators on this website more helpful than your monthly statements. They can allow you to model different scenarios, and so let you identify how to make the optimum savings on interest while staying within your personal budget.

Published 11/13/13