Many consumers could afford to pay more on their credit card bill each month but don’t because they’re fixated on the minimum payment amount shown on their statement, new research finds.

Making just the minimum payment means a consumer will take much longer to pay off the debt, and pay much more in interest. That’s something for shoppers to bear in mind as they charge gifts on their credit cards this holiday season.

Almost a third of credit card borrowers make payments at or near the monthly minimum amount, according to the study, published on the National Bureau of Economic Research website.

“Most people should try to pay it down much more rapidly,” said Benjamin Keys, an economist at the Wharton School of the University of Pennsylvania and an author of the study.

The researchers examined millions of general credit card accounts — a quarter of the U.S. credit card market — over a roughly five-year period ending in 2013.

Some people simply may not have the money available to pay down their balance faster. But 10 to 20 percent of consumers could afford to pay more, yet don’t because they are highly sensitive to the minimum payment amount, the research found.

Even consumers who do pay more than the minimum use it as a benchmark, paying, say, the minimum amount plus $10.

“They use the minimum payment as a guide, or anchor,” Keys said.

That may be because cardholders have a strong incentive to make the minimum payment to avoid fees and high penalty rates. Or it could simply be that the minimum payment is often the most prominent number on their bill, he said.

The power of the minimum payment persisted, the study found, even after the addition of an alternative payment comparison included on most credit card statements, as a requirement of the 2009 Credit Card Act.

Minimum payments vary by issuer, he said, and have dwindled over time. In the 1970s, the average minimum payment was 5 percent of the card balance and is now 2 percent.

Lower minimum payments offer borrowers the flexibility to pay less if they run into financial trouble. But the trade-off is that consumers may remain in debt for longer and pay more in interest.

Here are some questions and answers about credit card debt:

Q: How can I avoid running up credit card debt?

Keys suggests that if they can, consumers should make their own plan to pay off their balance with “a series of substantial payments,” rather than merely paying the required minimum.

Q: What about minimum payments on store credit cards?

Store cards — those carrying a specific retailer’s brand — are often tempting because retailers typically offer a discount on your initial purchase when you open an account.

But the average store card charges an interest rate of about 24 percent, much higher than the national average of 15 percent for all credit cards.

Q: Where can I get help with managing credit card debt?

Consumer credit counseling agencies can offer advice, often at low cost.

You can search for a local agency on the National Foundation for Credit Counseling’s website.


Ann Carrns writes for the New York Times.