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How do Americans repay their debt? The balance-matching heuristic
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Gathergood, J., Mahoney, N., Stewart, Neil and Weber, J. (2019) How do Americans repay their debt? The balance-matching heuristic. Economics Bulletin, 39 (2). pp. 1458-1466.
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Official URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB...
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
| Item Type: | Journal Article | |||||||||
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| Subjects: | H Social Sciences > HG Finance | |||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School | |||||||||
| Library of Congress Subject Headings (LCSH): | Consumer credit, Credit cards | |||||||||
| Journal or Publication Title: | Economics Bulletin | |||||||||
| Publisher: | Economics Bulletin | |||||||||
| ISSN: | 1545-2921 | |||||||||
| Official Date: | 9 April 2019 | |||||||||
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| Volume: | 39 | |||||||||
| Number: | 2 | |||||||||
| Page Range: | pp. 1458-1466 | |||||||||
| Status: | Peer Reviewed | |||||||||
| Publication Status: | Published | |||||||||
| Access rights to Published version: | Open Access | |||||||||
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