Credit card interest rates are now hovering around 29 percent for many U.S. borrowers, who, on average, hold just over $10,000 in credit card debt per household. By any economics definition, one would think that consumers would be rushing to pay double or triple the minimum payment to avoid a mountain of interest and decades of payments.

However, researchers at the Boston College Carroll School of Management found that disclosing the minimum payment amount on credit card statements ultimately results in consumers paying less toward their debt. In the study, a required minimum payment caused consumers to reduce their debt payments by 24 percent.

Surprisingly, card statements showing the interest accrual and payoff time did not motivate consumers to pay more. Instead, they made it more likely that consumers would only pay the minimum amount due. Even when lenders raised the minimum payment by as much as 5 percent of the card balance, it could not compensate for the overall reduction in debt payments resulting from simply disclosing the information in the first place.

The explanation for this phenomenon is likely very simple. With a lack of disclosure, consumers may be unsure as to what they should pay. So, they overcompensate, trying to avoid getting hit with big late fees or higher interest charges. Disclosure removes the uncertainty, allowing consumers to pay less on their debt while still avoiding big penalties. Consumers can then divert the “savings” toward other bills or living expenses—not surprising at a time when many American families are strapped for cash.

This, of course, presents a dilemma for lenders: disclose minimum payment information and receive less in payments, or remove disclosure and risk some consumers defaulting on their debt because they don't know how much to pay. It also presents a problem for regulators who want to protect consumers from predatory lending practices while encouraging them to pay off their debt faster.

In either case, researchers say the study is useful for testing the effects of information disclosure. They say studies like this one can be used to test new regulations before they are implemented and help regulators avoid “unintended consequences.”

The study, appearing in the Journal of Marketing Research, is based on surveys of 500 U.S. consumers and data on over 100,000 British cardholders and 11 lenders. The study was published by authors Kay Lemon, Linda Salisbury and others.

Finance Charges

 One Mans experience with Chase Credit Cards, where he missed one payment and his interest skyrocketed. His additional videos are here and here

What can you do?

Don't accept it!

You can phone into your credit card company and ask for them to lower your rate, or your finance charges to be minimized. The key to getting compliance with your credit card companies is to go in with a plan before asking.  If you have a poor payment method, chances are very slim that you will get your rate lowered, or any additional favors added into that mix.  BUT, if you do make your payments on time, that is a huge card you can play.  You have to think of a plan before phoning.  Think of your conversation as a give and take. 

"I have made my payments on time for the last year, and I am hoping to pay off my credit card in the next 8 months, can you do better on the interest rate? " 

The bank is going to give up a lot of money of interest and finance charges they would otherwise make off of you, so why would they lower your rate? 

Most often, it involves a promise to make a certain amount of payments of some sort of give on your end.  We have an additional article that explains how to phone in and lower your credit cards here.  The # 1 success tip is to think in advance what positives you have on your side.  What cards do you hold in your hand?  Do you have a job that is consistent?  Have you paid on time?  Are you eager to make your payments on time?  Are you excited about paying off your credit card? 

When we phoned in to our credit card companies asking for a low rate we had success and failure.  One credit card gave us 0% interest for one whole year.  We were jumping up and down after that phone call, while the other card, flat out said NO, after talking to a number of representatives.  We decided to move our credit card balance to another card, because some companies will refuse to work with customers who are willing to pay off their debt.  Keep in mind, we did pay on time the entire time we had our card.  Some companies JUST will refuse to take a loss on their bottom line of making money. 

 The last card, we had to wait on hold on the phone for the manager as the customer representive  declined to lower our rate.  One big tip we can pass on is don't give up on the phone.  Many people are phoning in and asking for a lower rate, so their customer reps are educated to decline customers.  Most customers think, no means no, so they give up and hang up.  Ask to speak to the manager in charge.  If you do so, be sure to have a plan that details why they should give it to you, and what you will promise in return for a lower rate.