A new study indicates consumers tend to pay off their smaller debts before addressing larger ones.
Published in the American Marketing Association's Journal of Marketing Research, the lab experiment conducted by researchers found that consumers often devoted much of their resources toward paying off debts that were smaller in size before moving on to more costly debts. This was the case even when the researchers included scenarios that forced participants to pay attention to debts that were larger.
Attempting to explain why this was the case, the researchers theorized that consumers tend to be debt averse. By paying off smaller debts first, it gives consumers the impression that they are in more control of their financial situation. In reality, however, the researchers say this tactic may be costing them more money in the long run.
The authors said the study was worthwhile, as it can help lenders develop tools that may help consumers get out of debt more quickly and improve their credit scores.
Occasionally, consumers' credit reports may give the impression they're in arrears when they're actually current. Discrepancies like these may require credit services to solve the issue.