Sticking to Your Plan: Hyperbolic Discounting and Credit Card Debt Paydown". Working Paper

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 impa-tience, I exploit that this sensitivity varies with available resources for sophisticated agents only. Consistent with present bias, planned paydown is significantly more predictive of actual paydown for sophisticated agents than naive agents and higher measured impatience reduces paydown for sophisticated agents only. The findings are inconsistent with several alternative explanations, including credit constraints. In 2010, nearly 70 % of households in the United States had at least one credit card. More than half carried credit card balances from month to month. With interest-bearing debt averaging around $12,900 per household and with a median interest rate of 13%, the cost of interest to the average American household was more than $140 per month (Ackerman, Fries, and Windle, 2012). At such substantial cost, the extent of credit car