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Why credit card debt weighs us down

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(Source:3TV/CBS 5) (Source:3TV/CBS 5)

Research shows the average American household carries a $16K balance, sometimes over multiple credit cards, at any given time. So, why aren’t we working harder to pay them off? Surprising new research claims it may not be because we can’t or don’t want to – but because of a psychological phenomenon associated with credit card bills themselves.

For years, Brian Brandow had a well-paying job, a nice house, and a boatload of credit card debt.

“We were spending more money than we were making and using credit cards to try to finance that,” he remembers.

When the bill came each month, he paid the minimum even when he could afford to pay more. “We would take that money and look for other ways to spend it,” he says. “We felt if we could make the minimum payment, regardless of balance, then we would be okay.”

Researchers estimate nine-to-twenty percent of us base our payments on the minimum due, even if we can pay extra. Now, a new report suggests a reason why: a psychological phenomenon called anchoring.

“Anchoring is the idea that some piece of information – maybe it’s completely irrelevant information – is having an influence on your decision,” explains the study’s co-author, Benjamin Keys, PhD, an economist at the Wharton School at the University of Pennsylvania.

In this case, he says, that’s the minimum payment, which is always featured up front and center on your bill.

“It’s right in the dead center of every month’s account statement,” he says. “And, I think a lot of consumers use that as a guide to influence their choices more strongly than they otherwise should.”

While the Credit CARD Act of 2009 forced companies to add disclosures on minimum payments to their bills, Keys says it has not stopped anchoring behavior and more steps are needed.

“I’d like to see credit card companies do more to inform their customers about the time that it takes to repay their debt if they’re only paying the minimum,” he says. “And, give them online tools to allow them to develop a budget and a repayment plan that works for them.”

As for Brandow and his family, it took four years of cutting spending. But today, they are debt free.

“We just really kind of fell into the trap that everybody has a credit card, everybody has credit card debt, it’s normal to do that,” he says. “People need financial education.”

Copyright 2017 KPHO (KPHO Broadcasting Corporation). All rights reserved.

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Gary HarperGary Harper is the senior consumer and investigative reporter for 3 On Your Side at KTVK-TV.

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Gary Harper
3 On Your Side

With more than 20 years of television experience, Gary has established himself as a leader in the industry when it comes to assisting viewers and resolving their consumer-related issues. His passion and enthusiasm have helped him earn an Emmy for Best Consumer Reporter from the National Academy of Television Arts and Sciences. He’s also garnered several Emmy nominations

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Gary has successfully recouped more than $1 million for viewers around the state, making 3 On Your Side one of the most popular segments on KTVK and the station's Web site.

He's best known for investigating and confronting unscrupulous contractors. In fact, many of his news reports have led to police investigations and jail time for those who were caught. Viewers, as well as the companies and people he investigates, regard him as consistently being thorough and fair.

Gary has been with KTVK-TV since 1997. Prior to his arrival in Phoenix, he worked for WZZM-TV in Grand Rapids, Michigan, where he was as an anchor and reporter.

Gary is from Chicago, but launched his television career in Lubbock, Texas, after earning a broadcast journalism degree from Texas Tech University. Following his graduation, he was quickly hired by KLBK-TV in Lubbock, where he enterprised and broke numerous exclusive reports. His aggressive reporting in Texas helped garner him Best Reporter by the Associated Press.

Gary has been married since 1994 and is the proud father of two sons. When he's not helping viewers, Gary is busy catching up on his favorite college and professional football teams as well as cheering on his beloved Texas Tech Red Raiders.

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