Credit cards are a great tool to shop and spend. But what happens if you do not pay the full balance each month. This is where credit card revolving balances come into play and they can be a very expensive way to finance your purchases.
Credit cards let you pay the Minimum Due each month which is typically all interest accrued in the month and 1-3% of the balance. That would be fine, but if you are revolving $10,000 at the average US credit card APR of 21%, that means you are paying $2,100 in interest annually and it would take almost 50 years to pay down your balance in full! Credit card companies have no incentive to push users to pay down their balance quicker, in fact as long as users keep paying their Min Due on time, the outcome is a very lucrative tax on consumers.
There is significant research around Anchoring and the effects of Min Due on consumer behaviour. As described in this Wharton research paper:
“Credit card minimum payments can act as an “anchor” that causes consumers to pay less of their debt than they otherwise would, leading to higher balances and interest costs”
Bright wants to change this by turning the tables on this and focusing not on the Min Dues but instead the amount that a consumer can pay each month sustainably. Instead of looking at a Min Due as the bill, we focus on how to pay down balances each month while staying to budget. The impact of this can be incredible. Even an extra $25 a month in balance paydown means $1,000 saved in interest and the savings can be much higher. By removing the anchoring effect of the Min Due and focusing instead on the right amount to pay, we help users get out of debt as quickly as is sustainable.