Does offering prizes increase debt payment compliance?

| Jul 13, 2021 | Firm News |

Credit card debt is a major burden for millions of Americans. It is also a burden upon creditors. Many creditors go to great lengths to encourage debtors to stick to payment plans.

A recent study focused on whether or not offering prize-linked incentives could help increase debt payment compliance. According to Innovations for Poverty Action, while the prize-linked experiment was popular with debtors and those who chose to participate were more timely with their payments, the actual efficacy of such initiatives is not clear.

Intervention details

The researchers worked with debtors who were actively participating in a debt management plan. They chose participants at random and gave them the option to try out a prize-linked debt repayment program. Essentially, for each payment that the debtor made on time, the researchers entered the debtor into a drawing for a $500 prize, which the debt management plan deducted from their overall debt load.

In addition, each successful debt payment would render the debtor eligible for a $10,000 yearly grand prize drawing. Again, the winner would have this amount deducted from their overall debt load.

Results and lessons

Nearly 75% of the invited debtors elected to participate in the program. The study participants in the program were more effective in repaying their debt compared to those who did not participate.

However, researchers also noted that since the program was self-selecting, it is highly likely that debtors who were more likely to repay their debt anyway decided to participate in the program for the chance of additional benefits. This suggests that price-linked incentives do not necessarily modify debtor behavior, but rather attract individuals more likely to pay off their debt anyway.