How do Americans repay their debt? The balance-matching heuristic

John Gathergood, Neale Mahoney (), Neil Stewart () and Jörg Weber ()
Additional contact information
Neale Mahoney: University of Chicago
Neil Stewart: University of Warwick

Economics Bulletin, 2019, vol. 39, issue 2, 1458-1466

Abstract: In Gathergood et al. (forthcoming), we studied credit card repayments using linked data on multiple cards from the United Kingdom. We showed that individuals did not allocate payments to the higher interest rate card, which would minimize the cost of borrowing, but instead made repayments according to a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. In this paper, we examine whether these results extend to the United States using a large sample of TransUnion credit bureau data. These data do not have interest rates, so we cannot examine the optimality of payments. However, we observe balances and repayments, so we can examine balance-matching behavior. We replicate our analysis and find that Americans also repay their debt in accordance with a balance-matching heuristic.

Keywords: credit cards; consumer borrowing; rational behavior; balance matching; heuristics (search for similar items in EconPapers)
JEL-codes: D1 G2 (search for similar items in EconPapers)
Date: 2019-06-15
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: How Do Americans Repay Their Debt? The Balance-Matching Heuristic (2019)
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