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What Happened to the Revolving Credit Card Balances of 2009?

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  • Lawrence Santucci

Abstract

We track the disposition of revolving credit card balances that existed as of March 2009 ? the peak of outstanding balances in our data set ? over a four-year period. We find that 75 percent of those balances had been paid off or charged off by February 2013. Charge-offs played a much smaller role in balance reduction than did paydown: 27.8 percent of balances were charged off, while 72.2 percent were paid down. Charge-offs accounted for a much larger share of balance reduction in the riskiest quintile and almost none of the reduction in the least risky quintile. After stratifying by risk score as of March 2009, balance, and utilization, we find that highly utilized accounts were no more likely to reduce their debt balances than low utilized accounts. We also find that low-utilization accounts were more likely to reduce their balances by paydown rather than default. By comparing accounts affected by unfavorable events, such as closures, freezes, and rate increases, with those accounts that did not experience such an event, we find that, while the aggregate results appear to be similar, there is a high degree of variation within risk quartiles, both with respect to debt reduction rates and to balance reduction shares attributed to paydown and to charge-off.

Suggested Citation

  • Lawrence Santucci, 2016. "What Happened to the Revolving Credit Card Balances of 2009?," Consumer Finance Institute discussion papers 16-1, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpdp:16-01
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/consumer-finance/discussion-papers/dp16-01-what-happened-to-revolving-credit-card-balances-2009.pdf
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    References listed on IDEAS

    as
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    6. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2018. "Do Banks Pass through Credit Expansions to Consumers Who want to Borrow?," The Quarterly Journal of Economics, Oxford University Press, vol. 133(1), pages 129-190.
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    Cited by:

    1. Muteba Mwamba, John Weirstrass & Mhlophe, Bongani, 2019. "Modelling Asset Correlations of Revolving Loan Defaults in South Africa," MPRA Paper 97340, University Library of Munich, Germany.
    2. Yiwei Dou & Julapa Jagtiani & Ramain Quinn Maingi & Joshua Ronen, 2020. "The Credit Card Act and Consumer Debt Structure," Working Papers 20-32, Federal Reserve Bank of Philadelphia.

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    More about this item

    Keywords

    Credit cards; Revolving balance; Deleveraging;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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