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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...

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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
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
Dates:
DateEvent
9 April 2019Accepted
15 June 2019UNSPECIFIED
Volume: 39
Number: 2
Page Range: pp. 1458-1466
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Open Access
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
ES/K002201/1, ES/N018192/1, ES/P008976/1[ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
RP2012-V-022Leverhulme Trusthttp://dx.doi.org/10.13039/501100000275
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