Anchoring is a psychological term. It involves putting a number in someone's head, even an irrelevant one, to affect behavior. This seems to be the case with the minimum payment amount on credit card bills. Laws designed to protect cardholders from getting deeply into debt mandate such minimum payment amounts. The theory behind these laws is that, absent a mandatory minimum payment, many card holders will pay less (or nothing), thus building up huge interest charges that will overwhelm them.
According to an academic study of the matter, the effect actually is the opposite. For people predisposed to pay off their credit card bills in full, the minimum payment amount seemed to have no effect. However, among those who wanted to pay off only part of their bills, the minimum payment typically was well below what they otherwise would pay. These people, on average, paid 43% less than they would have in the absence of a minimum payment amount. This, of course, leads them to incur nearly twice as much in interest charges, the exact opposite of the law's intent.
