Minimum payments and debt paydown in consumer credit cards

Recent Developments in Consumer Credit and Payments

In his opening remarks at the conference, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, noted that innovation in electronic payments has led to major changes in the financial industry. The process of innovation has allowed new entrants into the industry, expanding the availability of consumer credit and permitting more opportunities for smoothing consumption over time....

Sticking to Your Plan: Hyperbolic Discounting and Credit Card Debt Paydown

Using detailed data from an online service, I analyze the influence of present bias on debt paydown behavior. Each user’s sensitivity of consumption spending to paycheck receipt proxies for his short-run impatience. To distinguish between consumers who are aware (sophisticated) and unaware (naive) of their future impatience, I exploit that this sensitivity varies with available resources for so...

Sticking to Your Plan: Hyperbolic Discounting and Credit Card Debt Paydown

STICKING TO YOUR PLAN: HYPERBOLIC DISCOUNTING AND CREDIT CARD DEBT PAYDOWN theresa Kuchler, of new york University’s Stern School of Business, reported on an empirical study of individuals’ success in carrying out plans to reduce their credit card balances. Broadly, Kuchler had two objectives. Her first objective was to find evidence for present-biased behavior, in which consumers make plans to...

Consumer Lines of Credit: the Choice between Credit Cards and Helocs

Credit cards and inflation

The introduction (and widespread use) of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes massive inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it will have to sacrifice all the efficiency gains. When there is default on credit cards, t...