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John Gathergood, Neale Mahoney, Neil Stewart and Jörg Weber
''How do Americans repay their debt? The balance-matching heuristic''
( 2019, Vol. 39 No.2 )
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.
Keywords: credit cards, consumer borrowing, rational behavior, balance matching, heuristics
JEL: D1 - Household Behavior: General
G2 - Financial Institutions and Services: General
Manuscript Received : Feb 28 2019 Manuscript Accepted : Jun 15 2019

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