NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Minimum Payments and Debt Paydown in Consumer Credit Cards

Benjamin J. Keys, Jialan Wang

NBER Working Paper No. 22742
Issued in October 2016
NBER Program(s):PE

Using a dataset covering one quarter of the U.S. general-purpose credit card market, we document that 29% of accounts regularly make payments at or near the minimum payment. We exploit changes in issuers' minimum payment formulas to distinguish between liquidity constraints and anchoring as explanations for the prevalence of near-minimum payments. Nine to twenty percent of all accounts respond more to the formula changes than expected based on liquidity constraints alone, representing a lower bound on the role of anchoring. Disclosures implemented by the CARD Act, an example of one potential policy solution to anchoring, resulted in fewer than 1% of accounts adopting an alternative suggested payment. Based on back-of-envelope calculations, the disclosures led to $62 million in interest savings per year, but would have saved over $2 billion per year if all anchoring consumers had adopted the new suggested payment. Our results show that anchoring to a salient contractual term has a significant impact on household debt.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22742

Users who downloaded this paper also downloaded* these:
Kerr, Kerr, Ă–zden, and Parsons w22715 Global Talent Flows
Falato and Scharfstein w22689 The Stock Market and Bank Risk-Taking
Ru and Schoar w22360 Do Credit Card Companies Screen for Behavioral Biases?
Aizenman, Chinn, and Ito w22737 Balance Sheet Effects on Monetary and Financial Spillovers: The East Asian Crisis Plus 20
Greenstein, Gu, and Zhu w22744 Ideological Segregation among Online Collaborators: Evidence from Wikipedians
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us