The best indicator of how fast you’ll pay off your credit-card debt isn’t your income, or even how much debt you owe.
It’s mostly about your plan of attack.
That’s according to researchers Theresa Kuchler and Michaela Pagel, who published their work in a recent working paper circulated Monday by the National Bureau of Economic Research, a research organization in Cambridge, Mass.
Kuchler, a professor at New York University’s Stern School of Business, and Pagel, a professor at Columbia Business School, analyzed data from an online personal-finance service called ReadyForZero.com, which aims to help customers pay down their debt.
They chose a sample of 516 customers between September 2009 and September 2012, who linked their checking account, receive regular bi-weekly paychecks and appear to have linked all their active credit-card accounts.
When they signed up for ReadyForZero, each customer made a plan of how much they wanted to reduce their debt every month. Making that commitment turned out to be the best predictor of how much they would pay down.
What’s more, it turned out to be a more accurate predictor of how much they would pay off than both their incomes or the original amount of debt they owed, two issues that are often cited as obstacles for people struggling to pay off debt.
Consumers in the U.S. have a long way to go. Americans collectively owe more than $1 trillion in credit-card debt.
People still put their short-term wants above all else
Even given those improved odds, most of the customers they studied still fell far short of their goals. On average, each person only reduced their debt by 25 to 30 cents of every dollar they planned to pay down.
Customers often became impatient and wanted to make shorter-term purchases that they prioritized over paying back their debt, the researchers said. Behavioral economists call this “present bias,” placing short-term wants over long-term goals.
Still, this isn’t the first study that has showing a commitment to paying off debt is an important ingredient in actually doing it.
People are more likely to pay their credit card bills when they receive an automated phone call that asks them to make a commitment to paying it back within a short time frame, such as 24 hours to 72 hours, researchers from Boston University’s Questrom School of Business concluded in a study released last month.
As for the analysis of ReadyForZero users, Kuchler and Pagel advised removing one variable from the equation: temptation. “Allow consumers to select a certain amount to be deducted from their regular paycheck to be put towards debt repayment, and to make it costly or complicated to change this selection,” they wrote.
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