Working Paper: NBER ID: w25557
Authors: John Gathergood; Neale Mahoney; Neil Stewart; Jörg Weber
Abstract: In Gathergood et al. (2019), 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: debt repayment; balance-matching heuristic; credit cards; consumer behavior
JEL Codes: D12; D14; G02; G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| balance-matching heuristic (C78) | repayment behavior (G51) |
| balance matching behavior (C92) | repayment behavior (G51) |
| balance matching is persistent (F32) | repayment behavior (G51) |