Which Factors Financially Distressed Consumers Consider When Choosing One Credit Card to Default? Evidence from a Novel Dataset

Using a novel dataset composed of nearly 30k randomly selected cardholders from the largest financial institution in Latin America (Itau Unibanco), we analyze the choices of distressed Brazilian clients. Conditional on having two credit cards and defaulting on only one of them, we find that individuals strategically choose to pay the credit card statement with the highest available limit at the expense of low-limit credit cards, which is consistent with precautionary liquidity concerns. Furthermore, consumers are less likely to default on long-term relationship cards, premium credit cards, cards that offer a reward program, and cards where they concentrate most of their purchases. Such a pattern suggests that customer loyalty, demand for status goods, and mental accounting also play an essential role in consumers' decisions. Our evidence highlights the features distressed cardholders consider when choosing to default and contributes to understanding consumers' decision-making process in the credit card industry.