Summary

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

Details: Economics Bulletin, Vol 39(2) 1458-1466

Authors: John Gathergood (University of Nottingham School of Economics), Neale Mahoney (University of Chicago Booth School of Business), Neil Stewart (Warwick Business School) and Jörg Weber (University of Nottingham School of Economics).