Self-control and debt: evidence from data on credit counselling

Counselling agencies assist borrowers in financial difficulties by administering repayment plans, the so-called debt management plans (DMPs). In this paper, we use unique administrative data from a major credit counselling agency in the UK to analyze the determinants of debt repayment performance of approximately 60,000 borrowers who are enrolled on a DMP. Employing survival analysis, we estimate that borrowers who smoke and who reported poor financial management as the reason for their repayment difficulties at the enrollment stage are significantly more likely to fail on a DMP even when controlling for a rich set of covariates including monthly DMP payments, income, expenditures, self-reported experiences of negative shocks prior to DMP (illness, job loss, divorce, pregnancy), gender, age, marital status, having a mortgage, and whether the consumer is self or full time employed. In particular, smoking increases the probability of failing on a DMP by 31 percent and admitting bad financial management increases by 12 percent. Our findings lend considerable support to the view that self-control considerations play a role in households' indebtedness and consequent repayment difficulties.