Personal Finance

This repayment hack could help you knock out credit-card debt faster

Key Points
  • Forget that minimum monthly payment. A forthcoming study finds consumers paid off more of their monthly credit card balance when given the chance to target specific purchases on their statement for repayment.
  • But experts say there aren't many tools to do that directly through your credit card issuer.
  • A DIY approach would require splitting how you pay for your purchases. 
Hero Images | Hero Images | Getty Images

Taking a closer look at your credit card statement could help you dig out of debt faster.

Consumers paid off more of their monthly credit card balance — and whittled down big debts faster — when given the chance to target specific purchases on their statement for repayment, compared to when only offered typical repayment options such as making the minimum payment. In other words, instead of plunking down the minimum $50, you might nix all your Uber rides, that new pair of sneakers and last week's happy hour tab.

That's according to a forthcoming study from researchers at Ohio State University, Harvard Business School, University of Pittsburgh and the Yale School of Management.

Think of "repayment-by-purchase" as a budget reckoning.

The lag time between a purchase and receiving a credit card statement in the mail makes it easy to forget how many times you've pulled out that card, and for what, said Grant E. Donnelly, the paper's lead author and an assistant professor of marketing at Ohio State University. Assessing individual purchases within that larger balance prompts consumers to evaluate what they spent, he said, and to think about what expenses are being left uncovered to accrue interest.

"It seems to change the experience of how people pay that bill," he said. Instead of anchoring on the monthly minimum, "They look to an item and say, 'Well, can I pay that off?'"

"What does that $50 repayment mean to you?" Donnelly said. "A pair of shoes, or two dinners out?"

Researchers found the effect of a "repayment-by-purchase" strategy was stronger when users had access to an interface that let them make a repaid expense disappear from their bill, compared to analyzing the credit card statement on their own, he said.

But consumers interested in trying this tactic may find they need to settle for a DIY approach.

Few credit card issuers have tools for people to implement a "repayment-by-purchase" strategy, said Odysseas Papadimitriou, chief executive of

"These card-specific programs are doomed to fail… because they require work," he said. "Most people don't have the time, discipline or interest to do this."

Rising interest rates and credit card balances
Rising interest rates and credit card balances

Chase announced earlier this fall that in November it will discontinue its free payment management system Blueprint, due to low participation rates. As part of its tools, Blueprint allowed cardholders to choose purchase categories to pay off in full each month, and to divide a larger purchase into installments.

(A spokeswoman said the bank is constantly evaluating products to provide value to customers. As an alternative to Blueprint, she said, it offers "Fixed Amount Auto Pay" wherein users can set a recurring payment amount other than the monthly minimum.)

American Express offers "Pay It Plan It," letting cardholders split up purchases of $100 or more to repay over time.

There's a fixed monthly fee for using the plan, of up to 1.16 percent of the purchase. That could prove pricier for consumers that shifting their debt to a no-interest or low-interest card, said Papadimitiou.

"Most people are really bad at understanding the APR on a monthly fee," he said.

(An American Express spokeswoman said Pay It Plan It allows for "more flexibility whether paying for larger purchases over a set period of time for a fixed fee or quickly paying off small purchases.")

More from Personal Finance:
This student loan forgiveness program is still denying most people
Here's where the crazy rich billionaires are
Early retirement and financial independence isn't just a guy thing

To get the same impact absent a tool from your financial services provider, you could review your statement on your own and target categories or purchases for repayment. Experts say an easier way is to divide how you pay.

Papadimitriou recommends what he calls the "island" approach.

"Essentially you have two credit cards," he said. "One you have to pay in full every month."

Hold the second in reserve for any purchase you anticipate financing over time. That second card should have a promotional no-interest or low-interest deal on purchases or balance transfers, he said.

Such a split helps you avoid continuing to roll a balance forward, curtailing interest charges, Papadimitriou said.

"What does that $50 repayment mean to you? A pair of shoes, or two dinners out?"
Grant E. Donnelly
Assistant professor of marketing, Ohio State University

To use this strategy effectively and develop better budgeting habits, check the balance on your pay-in-full card frequently, said certified financial planner Pamela Capalad, founder of Brunch & Budget in Brooklyn, New York. Pay it just as often.

"If someone is using a credit card for daily purchases, and they're trying to pay off credit card debt at the same time, I usually recommend paying [the daily purchase balance] off a couple times a week," she said.

Switch to debit for discretionary purchases, especially those made via apps or sites that let you purchase with a tap or two, Capalad said. (Think: Amazon, Uber and Grubhub.) That immediate ding to your checking account balance keeps such charges from becoming a stealth budget buster.

Don't go beyond two cards, Papadimitiou said. The aim of dividing your debt should be to conquer it, not add to it.

"You need to do it always with an eye to the full debt you carry," he said. "The more you fragment your debt, the easier it is to get into the debt trap."