Large debt burdens are a significant threat to financial stability for many households. Innovations for Poverty Action is working with researchers to evaluate whether prize-linked incentives can help borrowers reduce their debt burdens more effectively. A randomly selected group of borrowers on debt repayment plans were offered entry into a program that turns on-time debt repayments into entries in a lottery. Researchers are studying whether prize-linked incentives influence debt reduction, delinquency and default, programmatic retention, and whether the program can be financially self-sustaining.
Innovations for Poverty Action is working with a non-profit debt management provider who serves clients with outstanding debt in all 50 US states. The DMP consolidates non-Mortgage, non-Student, and non-Auto debt. Their average client is approximately 40 years old, earns $40,000 per year and owes approximately $17,500 in unsecured debt. A typical DMP plan lasts three to five years, but only approximately a third of clients successfully complete the program.
Project ongoing, results forthcoming.