It seems as though every article you read about credit card debt has new rules. Use your card. Don’t use your card. Pay off your card every month. Carry a small balance. It’s confusing.
On top of that, many articles outline 20 different rules you need to remember. Who can remember all of them? An even better question is why does getting out of debt have to be so complicated? Why does it have to be like rocket science? Isn’t there a better, easier way?
There is, actually. A group of researchers from the Urban Institute collaborated with the Arizona Federal Credit Union to create a study. This study focused on creating easy-to-remember rules of thumb that could be used to help credit card revolvers – those who carry balances from month to month – to reduce debt. The hope is that these rules of thumb would help consumers much more than financial education programs and classes, which are not only costly but generally ineffective.
The average family carries $15,000 in debt and in many cases, this number is continually growing. Inflation has outpaced cost of living increases, which means that many families are using credit cards to pay for basic everyday expenses.
According to the findings of the study, debt can be reduced by simply following two simple but important rules. The researchers started with 60 rules and narrowed the list down to two rules that were intelligible but also understandable, meaningful and easy to remember.
Rule #1: Don’t swipe the small stuff. Use cash when it’s under $20.
Rule #2: Credit keeps charging. It adds approximately 20 percent to the total.
As you can see, these rules are common sense but good reminders. They are actionable and focus on what to do instead of why to do it. To see if these rules would work, they were tested on 14,000 people with revolving credit card balances. These people received the rules via email, in the mail in the form of calendar magnets and as online banners when they went online. There was also a control group that received no rules.
The effects of the study were not mind-blowing, but given that it cost only 50 cents per person to deliver them the rules, the benefits definitely outweighed the cost. Rule #1 seemed to be more powerful. On average, those who received Rule #1 had $104 less debt six months later, with their balances 2% lower. As for Rule #2, there was not a huge effect overall, but some groups saw some improvement. Both rules seemed to work best for those under age 40. Those in this age group who received Rule #1 had $173 less debt, and those who received Rule #2 had $160 less debt. Some people spent less and used cash instead of credit.
The study, which was funded by the Consumer Financial Production Bureau, is a good first step toward helping reduce consumer debt by using rules of thumb. We all live busy lives and by receiving reminders – whether by text, email or postal mail - we can remember to focus on saving money and reducing debt.
Carrying a credit card balance is an expensive habit. If you don’t pay off your credit card every month, you run the risk of accruing hundreds and even thousands of dollars in interest fees. It turns into a cycle that can’t be broken.
Break the cycle today. Stop trying to keep up with the contradicting articles about credit card debt. Take control and vow to live within your means so you no longer have to rely on your credit card. It’s hopeful that these two simple rules can help alleviate something so complex as credit card debt.