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Complex Post Christmas Credit Card Debts Simplified by Psychology Researchers

Christmas is a time which sees many people spend their way into a mire of credit card debt, personal loans and the complexity of compound interest. Psychologists have long feared that many people simply cannot visualize how debt accumulates through compound interest and thus fail to take simple measures to deal with their debts. Now researchers at the University of Warwick have devised a simple visual means to help people understand the relationship between their repayments and the total cost of their debt. Empowered with this knowledge, people should be able to make the best decisions for their own circumstances.

Dr Neil Stewart and Dr Matthew Roberts from the University of Warwick's Department of Psychology have developed the new simple debt 'decision tool' and have made it freely available on line at .

If consumers can persuade their family to pause their credit card purchased Christmas computer games they can then turn their computers to the web page hosting the decision tool and get a real understanding of their post Christmas debts. People simply type in how much they owe and the interest rate on their card/debt and the tools sliding scales will then quickly update to match that particular debt. Consumers can then simply move a slider to change their monthly repayments and see just how quickly relatively small increases in repayments each month can combine to have significant consequences on the size of the total debt.

Dr Stewart said: "The calculation of compound interest is not simple, and there is no psychological reason why we would expect anyone to be good at it. This simple new 'decision tool' is designed to help people understand the relationship between how much people decide to repay each month and the long term cost of their debts." he also said:

"In paying off a debt, one must choose between tightening one's belt to make larger repayments now to get out of debt sooner or, alternatively, one can make minimal repayments but face being in debt for longer and repaying a larger amount. People seem to know intuitively that they must make this trade-off, but they are very bad at quantifying the relationship between monthly repayments and the total amount that must be repaid and the total duration of the debt."

"For example, suppose you owe £2,000 on a credit card with a 20 per cent APR and make repayments of £40 per month, which is just a little over the minimum repayment required to cover the interest. How much is it worth to increase your monthly repayments to £50 per month? In fact, in this situation, over paying by just £10 per month is really worth considering. You'll save about £1,000, making a total repayment of £3,300 instead of £4,300. You'll be out of debt in five and a half years instead of nine."

The researchers believe that their more visual debt "decision tool" will encourage people to take the first steps out of debt not just at Christmas but whenever they find themselves in trouble and too terrified by the numbers to act.

Notes for editors:

1       The embargo is in place till 23rd December as the University's web site will be down for maintenance on 22nd December 2005 making the decision tool unavailable most of that day.

2    The work was part funded by the Economic and Social Research Council (ESRC)

For further Information please contact:

Dr Neil Stewart, Department of Psychology
University of Warwick, Tel: 024 7657 3127
Mob: 07986 966128

Or: Peter Dunn, Press and Media Relations Manager,
University of Warwick Tel: 024 76 523708
Mobile: 07767 655860 email:

PR94 PJD 19th December 2005