(Jan. 29, 2021) Most consumers with savings would pay down some credit card debt but would also preserve a savings cushion rather than spend all of it retiring the balance, according to the results of an “online experiment” released by CFPB this week.
The findings of the study, according to the bureau, suggest that participants want to preserve a savings cushion. “In nine of the 10 hypothetical savings scenarios, fewer than half of participants put the maximum amount of savings toward debt reduction,” according to a release from CFPB. ”Only in the hypothetical scenario where savings was double the size of the debt ($10,000 versus $5,000), did even a majority of participants—77% —eliminate credit card debt.”
More than 90% of participants used at least some of the savings to pay down credit card debt, CFPB said, adding that suggests participants wanted to reduce debt. The agency said that, on average, participants allocated more than half of the savings they could to debt reduction, even among those assigned to the scenario with the lowest amount of savings.
“This study provides a valuable first step to understanding how consumers balance goals of preserving a savings cushion and pursuing debt reduction,” the agency said in the release. “Our results suggest that the savings-debt trade-off is a balancing act, with most participants in the hypothetical scenarios allocating some of the savings to debt reduction (50 to 85%) while preserving the rest as a savings cushion.”