Credit card debt and payment use

Abstract

Approximately half of credit card holders in the United States regularly carry unpaid credit card debt. These so-called "revolvers" exhibit payment behavior that differs from the behavior of those who repay their entire credit card balance every month. So far, there has been no empirical analysis exploring the relationship between revolving behavior and patterns of payment use, such as substi-tution away from credit cards to other payment methods. Using data from the 2005 Study of Consumer Payment Preferences, we find that credit card revolvers are significantly more likely to use debit and less likely to use credit than convenience users, that is, those who repay their balances each month. There is no difference between the two groups in their use of check or cash. Revolvers are also more likely to see debit as superior with respect to control over money and budgeting. The findings show that revolvers not only adopt, but also use, debit more frequently, as a means to control their spending and improve their financial planning. The results suggest that consumers learn from their past financial behavior and change their payment habits after experiencing financial consequences.