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Sustained credit card borrowing

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  • Daniel Grodzicki
  • Sergei Koulayev

Abstract

Using a large panel of credit card accounts, we examine the dynamics of credit card borrowing and repayment in the United States and what these imply for the expected costs of credit card debt to consumers. Our analysis reveals that: (a) credit cards are predominantly used to borrow, (b) card debt is sustained for long periods and balances frequently rise before being repaid, and (c) this debt is potentially more costly than anticipated. Specifically, we document that 82% of outstanding balances are debt and that 70% of this debt accrues to those borrowing continuously for a year or more. The expected annualized cost of an episode of continuous borrowing is 28% of its initial balance, or 13 percentage points. higher than the average annual percentage rate. Moreover, credit scores decline during episodes, further raising the expected cost of borrowing on a card.

Suggested Citation

  • Daniel Grodzicki & Sergei Koulayev, 2021. "Sustained credit card borrowing," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(2), pages 622-653, June.
    • Handle: RePEc:bla:jconsa:v:55:y:2021:i:2:p:622-653
    DOI: 10.1111/joca.12360
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    References listed on IDEAS

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    Cited by:

    1. Paul Adams & Benedict Guttman‐Kenney & Lucy Hayes & Stefan Hunt & David Laibson & Neil Stewart, 2022. "Do Nudges Reduce Borrowing and Consumer Confusion in the Credit Card Market?," Economica, London School of Economics and Political Science, vol. 89(S1), pages 178-199, June.
    2. Jason Allen & Michael Boutros & Benedict Guttman-Kenney, 2024. "Credit Card Minimum Payment Restrictions," Staff Working Papers 24-26, Bank of Canada.

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