Courtesy of Ian Rogers of ‘The Sheet‘ newsletter on the financial industry:
Few CFOs pay down their credit cards
In keeping with the findings of this East and JP Morgan survey in the past, the research found that less than 20 per cent of respondents at the top 500 companies mainly chief financial officers take the trouble to pay off their personal credit card balance each month (if they have one).
In the middle market, 44 per cent of respondents (possibly CFOs) pay off their credit card. In the small business segment, 61 per cent of respondents (perhaps business owners rather than finance directors) pay off their credit card.
It’s an interesting finding, albeit representative of only a slice of the credit card holder customer base. However, presumably busy and possibly high-net-worth people regard the cost of carrying debt on credit cards as cheap.
JP Morgan speculates in the published research that this attitude toward the cost of credit card debt might be a good indicator of the views of those with revolving credit card balances, and that the presumed risk of credit loss on banks’ credit card portfolios may be lower than otherwise believed.
two comments.
1-
I have never understood why people pay the outrageous interest rates on credit cards when it is so easy to use it as cash.
2-
given that banks say that few people actually renege on payments can anyone expalin the large margins involved which imply significant number of people who can”t/don’t pay.
The banks cannot explain this.
Large margins might just reflect a large willingness to pay on the behalf of consumers. The difference between 8% and 16& on a balance of $20,000 is only $67 a month. If you only expect to run such a balance once or twice a year, you might decide it is cheaper to pay the higher interest as opposed to wasting time and effort searching for the best deal.
Joel, the one the main determinats of margins is risk.
This is why home loan margins are lower than personal oan margins.
Another reason why nicholas is involved with home loans as opposed to personal loans re peach loans.
My guess is that as more are coming into the credit card market this means the margins are not in tune with the risk which is why intermediaries got into the home loan market in the first place ie the margin was in excess of the risk.
I don’t think a rational explanation will work here. Anyone who has a partially paid-off mortgage (and anyone who owns a house can get a mortgage) can always get more credit by adding to the mortgage and this is much cheaper than carrying a credit card balance. The time cost is small for a once-off increase in debt.
As Joel says, it’s worth using a credit card as a source of occasional short term credit for amounts where the transactions costs of a mortgage redraw are higher than the interest penalty, but I assume that the question asked whether you normally pay the full balance.