How can you reduce your credit card debt? Try nagging, according to this research described in NYT article:

The researchers tested two rules of thumb. The first was that participants should use cash, instead of credit, for purchases under $20. The second advised them that paying with a credit card can add about 20 percent to the purchase cost for a typical revolver because of interest charges and fees. The rules were encapsulated in simple slogans: “Don’t swipe the small stuff. Use cash when it’s under $20.” And, “Credit keeps charging. It adds approximately 20 percent to the total.”

The messages were sent to participants in a randomized fashion in three ways: by email twice a month, with the message in the subject line; by a banner ad shown when participants logged onto the bank’s website; and by mailing a refrigerator magnet that included a calendar with the rule of thumb. A control group received no messages.

The study found that the rules of thumb produced “moderate” effects, at a low cost. The first rule, urging people to use cash for purchases of $20 or less, resulted in credit card balances that were on average $104, or 2 percent, lower than they would have been without the intervention. The cost of the effort was 50 cents per person. “The pain of payment is higher with cash,” said Brett Theodos, senior research associate with the Urban Institute.

Just wondering about…some questions your students might want to ponder:

• Wonder what the impact would have been had they texted this information instead of the three ways they did communicate, which don’t seem particularly effective modes of communication in today’s environment.
• Did the participants spend that $104 (the reduction in their cc balances) in cash so there was just a substitution from credit to cash or did their overall expenditures drop also?
• Can this research be applied to other desired financial behaviors, like savings, investing, comparison shopping…?
• Why do you think this intervention worked? Would it work for you?

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Setting up Alerts are another great way to manage your credit card and checking accounts. Here’s a great NGPF activity to help teach your students!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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