Working paper posted at ConsumerFinance.gov after my presentation at the 5th Consumer Financial Protection Bureau annual conference.

Labeling Debt as Ordinary versus Exceptional to Motivate Consumers to Increase Credit Card Repayments

As the amount of revolving consumer credit card debt continues to rise, it is important to find ways to encourage consumers to allocate discretional funds to repaying credit card balances. In the present paper, we study a series of interventions that encourage consumers to increase the size of their repayments. Across three experiments and a field study of more than 3’000 indebted consumers, we show that labeling consumers debt as either ordinary or exceptional can increase consumer repayments on their credit card accounts – but only when the expenses were predominantly ordinary. We show that debt labeling increases repayments when the debt is predominantly ordinary because consumers are more motivated to repay debt they consider unacceptable to have, and that consumers view debt as less acceptable if it results from ordinary spending than exceptional spending.