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Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction
Last registered on April 12, 2017

Pre-Trial

Trial Information
General Information
Title
Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction
RCT ID
AEARCTR-0001433
Initial registration date
April 11, 2017
Last updated
April 12, 2017 2:20 PM EDT
Location(s)
Primary Investigator
Affiliation
Northwestern University
Other Primary Investigator(s)
PI Affiliation
Dartmouth College
Additional Trial Information
Status
Completed
Start date
2010-01-26
End date
2010-04-15
Secondary IDs
Abstract
Mounting evidence suggests that behavioral factors depress wealth accumulation. Although much research and policy focuses on asset accumulation, for many households debt decumulation is more efficient. Yet the mass market for debt reduction services is thin. So we develop and pilot test Borrow Less Tomorrow (BoLT), a behavioral approach to debt reduction that combines a simple decision aid, social commitment, and reminders. Results from a sample of free tax-preparation clients with eligible debt in Tulsa (N=465) indicate strong demand for debt reduction: 41% of those offered BoLT used it to make a plan to accelerate debt repayment. Using random assignment to BoLT offers, we find weak evidence that the BoLT package offered reduces credit card debt.
Registration Citation
Citation
Karlan, Dean and Jonathan Zinman. 2017. "Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction." AEA RCT Registry. April 12. https://doi.org/10.1257/rct.1433-1.0.
Former Citation
Karlan, Dean, Dean Karlan and Jonathan Zinman. 2017. "Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction." AEA RCT Registry. April 12. http://www.socialscienceregistry.org/trials/1433/history/16418.
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Experimental Details
Interventions
Intervention(s)
In 2010, we developed and piloted a program called Borrow Less Tomorrow (BoLT) to help CAP clients reduce their debt. During tax season (January-April), we together with CAP staff asked tax preparation clients if they would be willing to complete a financial and behavioral survey in exchange for a US$5 gift card to a local gas station. Among the group that completed the survey, a total of 465 individuals were eligible to participate in the study because they had a positive balance on auto or credit card debt and had expressed interest in reducing their debt. All participants also granted permission to pull their credit reports on a regular basis to monitor debt payments and financial status.

We randomly assigned 238 individuals to be offered BoLT (the treatment group), and 227 individuals to not be offered BoLT (the comparison group). For those offered BoLT, the research team explained the program components to the participant and worked to identify a single, suitable debt on which to focus effort (e.g. a debt with a substantial balance and a high interest rate).

BoLT comprised three separate interventions:
1) Planning/Goal Setting: The surveyor used a simple repayment schedule calculator to show the participant how small increases in monthly payments could help dramatically reduce the time and cost to pay off their debt. The participant and surveyor would then establish a realistic repayment plan. In addition to an overall acceleration in repayment, participants were also offered the option to escalate payments every month. For example, a participant could commit to paying US$25 in month 1, US$35 in month 2, and so on to pay off debt at an even lower cost and faster pace.

2) Peer Support: For those participants who agreed on an accelerated repayment plan, surveyors offered the participant the option of selecting one or more peers to be notified if she fell off-track with her repayment commitment. The peer could then offer encouragement (but not financial support) to help the participant regain momentum and reach her repayment goal.

3) Reminder Notices: As a tool to focus participants’ attention on their debt reduction goals, those who agreed on an accelerated repayment plan were also offered the option of receiving a monthly reminder by email or phone to stay on track with their commitments.
Intervention Start Date
2010-01-26
Intervention End Date
2010-04-15
Primary Outcomes
Primary Outcomes (end points)
- Demand for debt reduction support (measured in sign-up for an accelerated repayment plan, sign-up to escalate payments every month)
- BoLT Performance (measured in timeliness of repayment, overall debt levels after one year)
Primary Outcomes (explanation)
Secondary Outcomes
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
Our sample frame for the study is drawn from the Community Action Project’s (CAP) free Volunteer Income Tax Assistance (VITA) tax preparation service for low and moderate income (LMI) individuals. CAP is based in Tulsa, Oklahoma and provides a range of social services including early childhood education and first-time homebuyer’s assistance. It runs one of the largest per-capita free tax preparation programs in the country, and delivered this service at eight different locations throughout Tulsa County during the 2010 tax season. CAP gave the research team access to the three busiest sites, and the research team approached potential subjects at these sites from January 26 through April 15.

High volume at the tax preparation sites resulted in long waiting times for many individuals visiting the CAP centers, and we used this downtime to enroll people into the study. The CAP receptionist or a surveyor from the research team would periodically ask people in the waiting room if they were interested in completing a survey about their financial well-being. The tax-preparation staff also encouraged people they were assisting to complete the survey after their tax-preparation session. Individuals were offered a $5 gift card redeemable at a local gas station and convenience store as an incentive to participate in the survey. Interested individuals were directed to a member of the research team. People granting consent to participate in the study (by complete the survey and granting permission for the research team to do “soft pulls” of the subject’s credit report that day, and going forward) were then interviewed. Survey interviews took about fifteen minutes and covered basic demographics, financial product use, respondent assessments of their household’s financial condition, and some basic questions designed to measure behavioral factors (time-inconsistency, exponential growth bias, and limited attention). 1432 interviews were completed over the 2.5 months of surveyor/marketer operations. Upon completing the survey, the interviewer used a random number generator in Excel to randomly assign the interviewee (the subject) to either receive a BoLT offer (details below in II-D), following the survey, or not. This process and assignment was not visible to the interviewee. Our sample frame consists of 465 individuals that qualified for BoLT by having an auto loan or a credit card with a positive balance at baseline. Of these, 238 were assigned to be offered BoLT (treatment) and 227 assigned to not receive BoLT (control).

We designed BoLT with an eye towards offering a simple debt reduction product that counters behavioral biases toward indebtedness and ultimately could be offered to a mass market of consumers interested in accelerating debt repayment (and/or controlling new borrowing). The version of BoLT piloted here has three features: a planning/goal setting tool, a commitment option, and reminders. Everyone completing a survey was randomly assigned to receive a BoLT offer or not, immediately upon finishing the survey (the randomization was conducted in real-time and unbeknownst to the subject, on the market/surveyor’s laptop). Subjects assigned to the control group received their survey compensation (a gift card), and thanks for their time. Subjects assigned to receive a BoLT offer also got a marketing pitch with a brief overview of BoLT’s features. Subjects expressing interest in BoLT were then taken through a more thorough, but still brief (typically twenty minutes from start-to-finish for those who signed up), planning and set-up process.

Step 1 of the BoLT marketing and intake process is identifying a suitable debt. In the pilot, this involved the marketer inviting the prospective client to discuss the client’s credit report, and using this information and the client’s recall to identify an auto loan or credit card account with a nontrivial balance and a high APR (credit reports do not include pricing information). Due to operational constraints in the pilot (namely making BoLT marketing and intake as simple and quick as possible in order to capture as large as a sample as possible while they were waiting to get their taxes done), we offered BoLT for only a single loan per client.

Step 2 of the intake process is using a decision aid to help make a concrete plan for paying down debt more quickly. The idea is to present someone with a simple but effective planning/goal setting tool that counters the many potential cognitive obstacles to motivating, setting, and implementing a realistic debt reduction goal, including limited numeracy or literacy, exponential growth bias re: interest expense, information overload, and planning fallacies. In the pilot studied here, the tool was a simple repayment schedule calculator, used by the on-site surveyor/marketer to help interested clients craft a realistic goal and schedule for accelerating the repayment of a single credit card or auto loan debt. Marketers typically reviewed a number of hypothetical payment schedules with a client to demonstrate the potentially dramatic reductions that small increases in monthly payments can have on repayment time and total interest paid (demonstrating this is a goal of one the new credit card disclosures required by the CARD Act). Once someone drafted a repayment schedule featuring the usual equal monthly payments, marketers presented the option of a payment schedule that escalated $10 each month.

Step 3 of the process is the offer of a commitment device, in this case the option of signing up one or more “peer supporters”, who would be notified and asked to provide encouragement (but not financial support), in the event that the BoLT client fell behind on her repayment schedule. The approach is to use the ex-ante prospect of peer notification, and any ex-post peer encouragement, as additional incentives for sticking to the debt reduction plan. Individuals who made a repayment plan in Step 2 were offered the Peer Support option, with a few exceptions. A client selecting the option simply gave the marketer contact information for one or more friends, family members, and/or co-workers.

The fourth step of the BoLT intake process had the client choose whether she wished to receive monthly reminders by phone or email. The idea here is to counter limited attention by keeping the client’s debt reduction goal and plan at “top of mind” (see, e.g., Karlan et al. 2011 and cites therein). Stand-alone reminders may be particularly important in settings, like our pilot, where the institutional or contractual environment does not tend to produce regular follow-up contacts (monthly statements, advertising). Reminders were administered by research team staff.

Besides administering reminders, the other follow-up administration involved in this implementation of BoLT is monitoring repayment progress so that peer supporters can be notified if the supported client falls behind their scheduled repayment plan. The research team does this monitoring monthly by comparing information from the client’s latest credit report (obtained with a soft pull) to her BoLT repayment plan.
Experimental Design Details
Randomization Method
Random number generator in Excel
Randomization Unit
Individual
Was the treatment clustered?
No
Experiment Characteristics
Sample size: planned number of clusters
465 individuals
Sample size: planned number of observations
465 individuals
Sample size (or number of clusters) by treatment arms
Treatment group (BoLT offered): 238 individuals
Control group (BoLT not offered): 227 individuals
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB
INSTITUTIONAL REVIEW BOARDS (IRBs)
IRB Name
Study has received IRB approval. Details not available.
IRB Approval Date
Details not available
IRB Approval Number
Details not available
Post-Trial
Post Trial Information
Study Withdrawal
Intervention
Is the intervention completed?
Yes
Intervention Completion Date
April 15, 2010, 12:00 AM +00:00
Is data collection complete?
Yes
Data Collection Completion Date
April 15, 2010, 12:00 AM +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
465 individuals
Was attrition correlated with treatment status?
Final Sample Size: Total Number of Observations
465 individuals
Final Sample Size (or Number of Clusters) by Treatment Arms
Treatment group (BoLT offered): 238 individuals Control group (BoLT not offered): 227 individuals
Data Publication
Data Publication
Is public data available?
No
Program Files
Program Files
Reports, Papers & Other Materials
Relevant Paper(s)
Abstract
Mounting evidence suggests that behavioral factors depress wealth accumulation. Although much research and policy focuses on asset accumulation, for many households debt decumulation is more efficient. Yet the mass market for debt reduction services is thin. So we develop and pilot test Borrow Less Tomorrow (BoLT), a behavioral approach to debt reduction that combines a simple decision aid, social commitment, and reminders. Results from a sample of free tax-preparation clients with eligible debt in Tulsa (N=465) indicate strong demand for debt reduction: 41% of those offered BoLT used it to make a plan to accelerate debt repayment. Using random assignment to BoLT offers, we find weak evidence that the BoLT package offered reduces credit card debt.
Citation
Karlan, Dean, and Jonathan Zinman. "Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction." Working Paper, May 2012.
REPORTS & OTHER MATERIALS