Small Reminders Can Help Lower Credit Card Debt

Email reminders from your bank or a banner ad on its website can become annoyances you’d probably rather avoid.

But if they’re done as part of a program to send you small reminders about how much using a credit card can cost, they could help you lower your credit card debt, researchers at the Urban Institute found.

The six-month study of customers at the Arizona Federal Credit Union in Phoenix who carry balances on their credit cards instead of paying off the balance each month found that they had lower revolving credit card balances when they were reminded of a simple rule of thumb: Use cash instead of a credit card for purchases under $20.

Using cash for $20 purchases

The first slogan was: “Don’t swipe the small stuff. Use cash when it’s under $20.”

The credit union sent that message to study participants at random in three ways: Email twice a month with the message in the subject line, a banner ad when they logged in at the bank’s website, and mailing them a refrigerator magnet that had a calendar and rule of thumb printed on it.

The “Don’t swipe the small stuff” message resulted in credit card balances that were $104 less, on average, or 2 percent less than they would have been otherwise.

For people under age 40, their revolving debt dropped by $173.

Credit adds 20% to cost

The second message didn’t have as much of an impact. The second message was: “Credit keeps charging. It adds approximately 20 percent to the total.”

For participants under age 40, the second message lowered their revolving deby by $160.

The messages cost 50 cents per person to send, and were found to work best for changing how people paid for recurring or frequent purchases.

Not one notification method worked best. Researchers found that getting messages by fewer channels worked better than by getting all three.

Nag yourself

There are a few ways to set up your own reminders to use your credit card less, pay with cash or save money in other ways.

Budgeting apps or just reminders set up on your phone can help you automate savings, for example, by automatically moving money into a saving or retirement account.

Your bank’s app or website may allow you to set text or email alerts when your account balance is low. Your credit card may be able to do the same thing, sending you an email when you’ve spent over a certain amount on a purchase, or letting you know when you’re near your credit limit.

The America Saves program sends periodic text messages to participants with savings tips and words of encouragement.

Apps such as Hiatus and Trim help consumers stop automatic renewals on their credit cards that they may have forgotten about.

Revolvers are common

If you carry a revolving balance on your credit card, you’re not alone.

Data from TransUnion, a consumer credit reporting agency, shows that about 133 million people have at least one credit card with a balance. The average credit card debt rose to $5,247 in the second quarter of this year, up from $5,197 in the first quarter.

To help solve such debt, it can be worthwhile to use an online calculator to enter your debt, interest rate and monthly payments to see how long it will take to get to a zero balance.

If it can take years, then it could be worth looking into transferring a high interest-rate balance to a zero percent interest-rate card. If you pay off the balance before the no-interest period ends — usually six to 12 months — it’s like getting an interest-free loan.

At the very least, make more than the minimum payment each month. Until you start using only cash for purchases of $20 or less, that’s one of the best ways to tackle credit card debt.