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Good credit, bad credit: The differential role of the sources of debt in life satisfaction

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  • Piotr Bialowolski
  • Dorota Weziak‐Bialowolska

Abstract

This study evaluated the short‐term links between different forms of household debt—credit card debt, student debt, debt from relatives, mortgage debt, car debt, and debt arrears—and life satisfaction. To this end, a longitudinal dataset for the US population from the Panel Study of Income Dynamics (PSID) was used and the propensity score difference‐in‐differences approach was applied. Credit card debt and student loans negatively impacted life satisfaction in the short term (up to 2 years). Mortgages and external financing for a car, however, were found to increase life satisfaction. The effects associated with the initial uptake and final repayment of a loan turned out to not be symmetrical—the end of any type of loan contract was not related to life satisfaction. In the case of involuntary debt (i.e., mortgage arrears), a significant negative impact on life satisfaction was noted when problems emerged, while a positive effect was found when the debts were paid off.

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  • Piotr Bialowolski & Dorota Weziak‐Bialowolska, 2021. "Good credit, bad credit: The differential role of the sources of debt in life satisfaction," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(3), pages 967-994, September.
    • Handle: RePEc:bla:jconsa:v:55:y:2021:i:3:p:967-994
    DOI: 10.1111/joca.12388
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