Absence of conflict of interest.
Citation
Highlights
- The study's objective was to examine the impact of debt management rules of thumb on credit card debt reduction.
- The study was a randomized controlled trial that assigned individuals to one of two treatment groups ($20 rule or 20% rule) or a control group. Using administrative data, the authors conducted statistical models to compare the outcomes of the treatment and control groups.
- The study found a significant relationship between the $20 rule and credit card debt reduction.
- The study receives a high evidence rating. This means we are confident that the estimated effects are attributable to debt management rules of thumb and not to other factors.
Features of the Study
The study was a randomized controlled trial that examined the impact of two debt management rules of thumb on credit card debt reduction. The intervention was designed for individuals who were considered credit card revolvers (credit card holders who carry a balance from month to month). The participants were randomly assigned to one of three conditions, one of two treatment groups or a control group. Treatment group 1 received the “Cash under 20” rule of thumb ($20 rule) that instructed participants to use cash when the cost was less than $20. Treatment group 2 received the “20% added” rule of thumb (20% rule) that informed participants that using credit adds approximately 20% to the total cost. The control group did not receive a rule of thumb.
The study delivered the rules of thumb through three different formats: online banners, physical mailers on calendar magnets, and email. The delivery method was randomly assigned to treatment participants. Participants assigned to the email format received the rule twice a month. Those assigned to the online banners saw the rules in a moving banner or static ad on the online banking website that varied in type and style throughout the entire intervention period. Finally, participants assigned to physical mail received the rules printed on a magnetic calendar.
The study sample consisted of 13,957 Arizona Federal Credit Card holders who were credit card revolvers. The average age of study sample was 46, less than half were female (45%), most were married (79%) with children (67%), and were homeowners (77%). Those who were assigned to the $20 rule group or the 20% rule group were significantly more likely to be college graduates than those in the control group. Those assigned to the $20 rule group were also significantly more likely to have a lower credit card balance as well as spend less on average on their credit card monthly than those in the control group. Data sources included monthly administrative data from the Arizona Federal Credit Union as well as pre- and post-intervention credit data from a large credit card reporting firm. The authors used a statistical model to compare the outcomes of treatment and control group members.
Findings
Knowledge and skills for money management
- The study found a significant relationship between the $20 rule and a decrease in participants’ credit card balance.
- However, the study did not find a significant relationship between the 20% rule and credit card debt reduction.
Considerations for Interpreting the Findings
The authors note that there could be a small chance of spillover of the intervention within a household with multiple accounts, particularly those who received the rules printed on a magnetic calendar. Therefore, the interventions’ impacts may be understated.
Causal Evidence Rating
The quality of causal evidence presented in this report is high because it was based on a well-implemented randomized controlled trial. This means we are confident that the estimated effects are attributable to debt management rules of thumb, and not to other factors.