(NPN) - Research shows the average American household carries a 16-thousand-dollar balance, sometimes over multiple credit cards, at any given time. So, why aren't we working harder to pay them off? Surprising new research claims it may not be because we can't or don't want to – but because of a psychological phenomenon associated with credit card bills themselves.
For years Brian Brandow had a good paying job, a nice house, and a boatload of credit card debt.
"We were spending more money than we were making and using credit cards to try to finance that," he remembers.
When the bill came each month, he paid the minimum even when he could afford to pay more. "We would take that money and look for other ways to spend it," he says. "We felt if we could make the minimum payment, regardless of balance, then we would be okay."
Researchers estimate nine to twenty percent of us base our payments on the minimum due, even if we can pay extra. Now, a new report suggests a reason why: a psychological phenomenon called anchoring.
"Anchoring is the idea that some piece of information – maybe it's completely irrelevant information – is having an influence on your decision," explains the study's co-author, Benjamin Keys, PhD, an economist at the Wharton School at the University of Pennsylvania.
In this case, he says, that's the minimum payment, which is always featured up front and center on your bill.
"It's right in the dead center of every month's account statement," he says. "And, I think a lot of consumers use that as a guide to influence their choices more strongly than they otherwise should."
While the Credit CARD Act of 2009 forced companies to add disclosures on minimum payments to their bills, Keys says it has not stopped anchoring behavior and more steps are needed.
"I'd like to see credit card companies do more to inform their customers about the time that it takes to repay their debt if they're only paying the minimum," he says. "And, give them online tools to allow them to develop a budget and a repayment plan that works for them."
As for Brian and his family, it took four years of cutting spending. But today, they are debt free.
"We just really kind of fell into the trap that everybody has a credit card, everybody has credit card debt, it's normal to do that," he says. "People need financial education."