Prevention, Resolution, or Counseling: Testing Three Approaches to Preventing Debt Payment Delinquencies in a Large-Scale Field Experiment

Abstract

Debt ownership is a common and increasingly large part of households' financial lives, which potentially exposes them to long-term credit risks from missed debt payments. In this study, we partnered with a large credit union to conduct a ten-arm field experiment aimed at reducing delinquent payments on installment debts. This experiment tested common behavioral interventions such as payment reminders against more novel approaches such as the use of magnet reminders and the development of a savings account that automated emergency savings. It also tested the impact of offering financial counseling services through a third-party organization. Our findings indicate that the email reminders–which emphasized resolving current delinquencies in some treatments and preventing future delinquencies in others–were effective at reducing payment delinquency rates in general, and also reduced rates of severe delinquencies. Other, more intensive treatments, which required participants to enroll in a new account or financial counseling, likely did not have an impact due to low takeup rates. We also find limited evidence that certain interventions were more effective for individuals with higher credit risk.

Keywords: behavioral economics, randomized controlled trial, credit union, payment delinquency, reminders, financial counseling, field experiment

JEL Classification: G21, I31, C93, D14, D18