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Federal Reserve study documents why consumers carry credit card debt even when they have liquid assets: bills

Economists struggling to understand why consumers make the economically unsound choice to retain liquid assets while continuing to accrue interest on a credit card debt can turn to the new paper from the Federal Reserve Bank of Boston, which demonstrates that people leave money in the bank to pay bills. Using data from the Diary of Consumer Payment Choice and the Survey of Consumer Payment Choice, authors demonstrate that more than 80 percent of bills among such “borrower-savers” are paid with funds from a bank account, rather than credit, indicating a positive bank balance is necessary, even if at the cost of credit card interest. Authors also document that most in this group don’t fully pay off card balances because they are unable to; more than half of the borrow-savers owed more on credit cards than they had in their bank. The share of people carrying a credit card balance is expected to rise as people run out of pandemic-era accumulated savings.