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Why doesn't the US pay off its credit card debt?

Written by Ashwin Rattan Wednesday, 13 February 2013 16:55
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Extracted from the OUP academic blog

By Irina A. Telyukova

In the United States, around 25% of households tend have a substantial amount of expensive credit card debt that they carry over multiple months or even years, while also holding significant liquid assets, i.e. balances in checking and savings accounts.

 

For example, in 2001 data, such households paid an average 14% interest rate on the credit card, while earning nearly no return on the bank accounts. A median such household had $3800 in credit card debt, and $3000 in the bank.  Theaverage amounts were about $5800 and $7200, respectively.  This behavior is quite persistent with age, as the picture below shows. It is also persistent over time, at least over the last two decades. The statistics for 2010 are very close to those for 2001.

 

To read the whole article goto:

 

http://blog.oup.com/2013/02/why-dont-people-pay-off-credit-card-debt/

 

Irina A. Telyukova is an assistant professor of economics at the University of California, San Diego.

 

Her research focuses on different aspects of household saving.

 

She has several publications on credit card debt and money demand. Her current research is about the use of home equity in retirement, in the United States and across countries, including a study about reverse mortgages. She is the author of the paper ‘Household Need for Liquidity and the Credit Card Debt Puzzle’, which appears in The Review of Economic Studies.

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