Dr. Keri Kettle, CD, BA, MBA, PhD

Assistant Professor of Marketing, School of Business Administration, University of Miami

Debt Repayment Strategy and Consumer Motivation to Get Out of Debt

Abstract

Why does it matter how indebted consumers allocate their debt repayments across accounts?  We propose that paying down debt accounts sequentially (focusing on  repaying one account at a time) rather than simultaneously (spreading repayments out across accounts) causes consumers to perceive greater progress which, in turn, increases their motivation to repay their debt.  Evidence from a large consumer debt data set and three experiments strongly supports the proposed process. Using credit card transaction data on 2,522 indebted consumers, we develop a measure of debt repayment strategy and show that the use of a more sequential strategy predicts subsequent debt repayment success in the field. The effect of paying down debt accounts sequentially (versus simultaneously) on consumers’ motivation to repay debt is mediated by perceived goal progress (Experiment 1), and is greatest for consumers with low trait self-control (Experiments 2 and 3), precisely those who tend to struggle to achieve long-term goals and are most likely to have debt in the first place.

For more information contact Cori Wells, cori.wells@ugouelph.ca ext. 52725