Patterns and evolution of consumer debt: evidence from latent transition models

This paper empirically investigates patterns in the use of credit and their temporal evolution against socio-economic and behavioural traits of borrowers. Debt holder segments were identified from data contained in three waves (2011, 2013 and 2015) of the biennial panel study of Polish households—Social Diagnosis. Analysis supported claims for a differential role of socio-economic characteristics and behavioural factors in evolution of segments of credit users. The analysis conducted with latent transition modelling confirmed intertemporal stability of borrowing patterns. At the same time, it was revealed that: (1) some groups of borrowers—mortgage holders in particular—were likely to stay in their respective groups, while others—especially those borrowing from outside the banking sector and those indebted for other purposes—were more likely to transition; (2) mortgages and loans for household run business were strongly linked to household socio-economic characteristics; (3) loans for durables, renovation and, most notably, consumption were less driven by age of the household head, whereas the ability to manage income was clearly pertinent for transition to those groups; (4) the group of overindebted consumers, although not particularly large, was characterized by high probability of remaining indebted with very low chances of escaping debt.