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How Do Individuals Repay Their Debt? The Balance-Matching Heuristic

Gathergood, John; Mahoney, Neale; Stewart, Neil; Weber, Joerg


Neale Mahoney

Neil Stewart

Joerg Weber


We study how individuals repay their debt using linked data on multiple credit cards. Repayments are not allocated to the higher interest rate card, which would minimize the cost of borrowing. Moreover, the degree of misallocation is invariant to the economic stakes, which is inconsistent with optimization frictions. Instead, we show that repayments are consistent with a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. Balance matching captures more than half of the predictable variation in repayments and is highly persistent within individuals over time.


Gathergood, J., Mahoney, N., Stewart, N., & Weber, J. (2019). How Do Individuals Repay Their Debt? The Balance-Matching Heuristic. American Economic Review, 109(3), 844-875.

Journal Article Type Article
Acceptance Date Aug 14, 2018
Online Publication Date Mar 1, 2019
Publication Date 2019-03
Deposit Date Aug 15, 2018
Publicly Available Date Aug 15, 2018
Journal American Economic Review
Print ISSN 0002-8282
Publisher American Economic Association
Peer Reviewed Peer Reviewed
Volume 109
Issue 3
Pages 844-875
Keywords credit cards, consumer borrowing, rational behavior, balance matching, heuristics
Public URL
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