Two steps forward, one step back? Quantifying the pecuniary costs of debt account aversion and the debt snowball.
The interest‐minimizing strategy to paying multiple debts is to make all minimum payments and allocate remaining funds to the debt with the highest interest rate. However, cognitive biases such as debt account aversion and financial advisors encourage borrowers to instead allocate remaining funds to...
| Publicado en: | Southern Economic Journal Vol. 89; no. 3; pp. 830 - 860 |
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| Formato: | Artículo |
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Wiley-Blackwell
Jan2023
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| Acceso en línea: | Ver este registro en EBSCOhost |
| fields | @attributes: recordID: 1 pdfLink: plink: https://search.ebscohost.com/login.aspx?direct=true&db=ssf&AN=161525203&site=ehost-live header: @attributes: shortDbName: ssf uiTerm: 161525203 longDbName: Social Sciences Full Text (H.W. Wilson) uiTag: AN controlInfo: bkinfo: jinfo: jid: 00384038 SEJ jtl: Southern Economic Journal issn: 00384038 maglogo: N pubinfo: dt: Jan2023 vid: 89 iid: 3 pid: 480 pub: Wiley-Blackwell artinfo: ui: 161525203 10.1002/soej.12612 ppf: 830 ppct: 30 formats: fmt: – @attributes: type: T – @attributes: type: C – @attributes: type: P size: 4.2MB tig: atl: Two steps forward, one step back? Quantifying the pecuniary costs of debt account aversion and the debt snowball. aug: au: Hamilton, Ben affil: Department of Economics, James Madison University College of Business, Harrisonburg Virginia, , USA su: Debt Consumer credit Capital costs Interest rates Aversion Cognitive bias sug: subj: Debt Consumer credit Consumer Lending Capital costs Interest rates Aversion Cognitive bias keyword: consumer debt debt repayment personal finance consumer debt debt repayment personal finance ab: The interest‐minimizing strategy to paying multiple debts is to make all minimum payments and allocate remaining funds to the debt with the highest interest rate. However, cognitive biases such as debt account aversion and financial advisors encourage borrowers to instead allocate remaining funds to debts with lower outstanding balances, a strategy known as the Debt Snowball. The author uses the 2016 Survey of Consumer Finances to quantify the pecuniary costs for American households of following the Debt Snowball and finds that the average household pays an additional 1.8%–4.3% in interest, leading to an aggregate transfer of wealth from borrowers to lenders of between $46.2 and $53.9 billion in excess of what would occur if borrowers instead minimized interest accrual. Due to differences in household debt structure, the Debt Snowball strategy imposes greater pecuniary penalties on low‐income households, on Black households, and on households with more initial debts. pubtype: Academic Journal doctype: Article src: R language: English refInfo: copyright: @attributes: flag: N holdings: @attributes: islocal: N |
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