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Credit card balances and repayment under competing minimum payment regimes

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  • Timothy Crack
  • Helen Roberts

Abstract

Although much research has been done on financial literacy and the use of credit cards, ours is the first to focus on the mathematics of competing credit card minimum payment regimes. The lack of prior research is surprising because the Office of the Comptroller of the Currency does not specify exactly what form a credit card minimum payment should take, and yet we show that competing credit card minimum payment regimes have significantly different impacts on both the rate of accumulation and level of credit card debt and also on the time taken to pay that debt off. We give closed-form solutions for the balance owing under competing repayment regimes and two spending scenarios. In addition, we discuss the policy implications for credit card and banking regulators and the personal finance implications for individual consumers using credit cards. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Timothy Crack & Helen Roberts, 2015. "Credit card balances and repayment under competing minimum payment regimes," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 785-801, November.
    • Handle: RePEc:kap:rqfnac:v:45:y:2015:i:4:p:785-801
    DOI: 10.1007/s11156-014-0455-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Time value of money; Credit cards; Minimum payments; Debt; D14; G12; G28;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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