Research, regulation, industry reports

The (not surprising) psychology behind minimum payments

Julie Sherrier

Researchers in Coventry, England, are saying a small segment of the population who, when presented with the option of making only the minimum payment instead of more, choose to do so. Earth-shattering, right?

According to University of Warwick psychology researcher Dr. Neil Stewart, whose research will be published in “Psychological Science,” “the mere presence of a minimum payment is enough to reduce the actual amount many people choose to pay on their bills, leading to further interest payments.” In a nutshell, Dr. Stewart is saying that some people don’t understand the long-term implications of not paying off their credit card balances in larger chunks. Stewart calls this psychological phenomenon “anchoring.”

An anchor, as Stewart’s research implies, is an element that discourages rather than encourages higher payments on outstanding balances. When conducting studies to support his research, Stewart’s team found that when some participants were presented with credit card bills with no minimum payment information and others were presented credit card bills with minimum payment information, the participants paid more on the bills with no minimum payment information.

The good news is that more than half of the study participants (55 percent) chose to pay off their credit card balances in full. Unfortunately, however, there appeared to be no consideration of the participants’ current financial situation, which would, it seems, have some influence over how much was paid. Stewart’s conclusion was that while minimum payments protect the small number of people who would choose to make no repayment on their credit card debt, they have an adverse effect on those who only pay a portion of the balance. In essence, “helping people understand how much different possible repayments will cost them in the long term should help protect them from anchoring on minimum payments,” says Stewart. That is exactly what the U.S. Federal Reserve proposes in its Regulation Z revisions, which seek to require installment credit issuers to include disclosures warning consumers of the implications of only making minimum payments on their accounts — namely, it will result in you paying more interest over a longer period of time.

In an article about the study, Stewart says, “These results should be of real concern to credit card companies. Virtually all credit card statements include minimum payments. But this consumer safeguard has an unexpected negative consequence: Minimum payments distort the behavior of many customers in a way that increases interest charges and increases the duration of their debt.”

Not to make light of Dr. Stewart’s research, but I think credit card companies have been privy to this anchoring phenomenon for a long time, and they most likely appreciate this bit of reaffirmation.

See related: New rules for credit card minimum payments, Calculator: The true cost of paying the minimum, Calculator: What will it take to pay off my balance

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, we ask that you do not disclose confidential or personal information such as your bank account numbers, social security numbers, etc. Keep in mind that anything you post may be disclosed, published, transmitted or reused.

The editorial content on is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

  • I think, somehow, self-discipline still plays a factor. If you have a credit card, you should be aware of how much you are charging as well as how these credit card companies compute the minimum payment yu have to make. If you know these little things, you could easily see what goes on when you only make a minimum payment.