IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-19-00207.html
   My bibliography  Save this article

How do Americans repay their debt? The balance-matching heuristic

Author

Listed:
  • John Gathergood

    () (University of Nottingham)

  • Neale Mahoney

    () (University of Chicago)

  • Neil Stewart

    () (University of Warwick)

  • Jörg Weber

    () (University of Nottingham)

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.

Suggested Citation

  • John Gathergood & Neale Mahoney & Neil Stewart & Jörg Weber, 2019. "How do Americans repay their debt? The balance-matching heuristic," Economics Bulletin, AccessEcon, vol. 39(2), pages 1458-1466.
  • Handle: RePEc:ebl:ecbull:eb-19-00207
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I2-P138.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard H. Thaler & Shlomo Benartzi, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March.
    2. John Gathergood & Neale Mahoney & Neil Stewart & Jörg Weber, 2019. "How Do Individuals Repay Their Debt? The Balance-Matching Heuristic," American Economic Review, American Economic Association, vol. 109(3), pages 844-875, March.
    3. Alejandro Ponce & Enrique Seira & Guillermo Zamarripa, 2017. "Borrowing on the Wrong Credit Card? Evidence from Mexico," American Economic Review, American Economic Association, vol. 107(4), pages 1335-1361, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Achten, Sandra & Lessmann, Christian, 2020. "Spatial inequality, geography and economic activity," World Development, Elsevier, vol. 136(C).
    2. Johannes G. Jaspersen & Marc A. Ragin & Justin R. Sydnor, 2019. "Predicting Insurance Demand from Risk Attitudes," NBER Working Papers 26508, National Bureau of Economic Research, Inc.
    3. Paul D. Adams & Stefan Hunt & Christopher Palmer & Redis Zaliauskas, 2019. "Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts," NBER Working Papers 25718, National Bureau of Economic Research, Inc.
    4. J. Anthony Cookson & Erik P. Gilje & Rawley Z. Heimer, 2020. "Shale Shocked: Cash Windfalls and Household Debt Repayment," NBER Working Papers 27782, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    credit cards; consumer borrowing; rational behavior; balance matching; heuristics;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • G2 - Financial Economics - - Financial Institutions and Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-19-00207. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.