Knowledge Snapshot
- About 23% of credit card customers in the study were classified as “co-holders,” meaning they maintained liquid assets while carrying interest-bearing credit card debt.
- The study was conducted by Rafael M. Batista of the University of Chicago Booth School of Business, Ella Mao of Stanford Graduate School of Business, and Abigail B. Sussman of the University of Chicago Booth School of Business, in partnership with a large Australian retail bank.
- The research analyzed survey responses from more than 2,000 customers and approximately 3 million transactions.
- The underlying definition of co-holding was at least $500 in liquid assets and $500 in revolving credit card debt for three consecutive billing periods. That does not necessarily mean every participant had enough cash to eliminate the entire card balance.
- The Federal Reserve reported that 46% of U.S. credit card holders carried a balance at least once during 2024.
Quick Answer
People carry high-interest credit card debt while keeping cash for several reasons. They may view savings as untouchable emergency money, separate spending and debt into different mental accounts, fear losing their financial cushion, or prefer the convenience and control of using debit for everyday purchases.
The financial problem is that cash in a low-yield account may earn only a few percentage points, while credit card debt can cost 20% or more. In that situation, keeping excess cash while carrying revolving debt creates a negative spread. The best response is usually not to drain every dollar from savings. It is to preserve a practical emergency buffer and direct the remaining surplus toward the highest-interest debt.
Editorial Context: The “Credit Card Debt Puzzle”
A Heraldcorp report published on August 6, 2026, highlighted the finding that about 23% of cardholders carried credit card debt even though they had money in deposit accounts.
The behavior is not new, and it is not simply a matter of people failing to understand interest rates. Research from the Consumer Financial Protection Bureau found that many consumers know credit card rates are higher than savings rates but still hesitate to use savings to pay down debt.
This is the central behavioral finance insight: financial decisions are not based on mathematics alone. People also respond to fear, habits, mental categories, convenience, and the emotional discomfort of watching savings fall.
The Federal Reserve’s household survey provides broader context. In 2024, 81% of adults had a credit card, and 46% of cardholders carried a balance at least once during the prior year. That figure includes people who may have carried a balance temporarily, so it is not identical to persistent revolving debt. Still, it shows how common credit card borrowing remains.
Why People Keep Cash While Carrying Expensive Debt
1. Savings feels like protection, not money
Many people view savings as a shield against job loss, medical bills, car repairs, or other emergencies. Paying a credit card bill can feel like weakening that shield, even when the debt is more expensive than the savings account is productive.
This concern is not irrational. A person with no cash reserve may pay off a credit card today, face a $1,500 emergency next month, and have to borrow again.
The mistake is treating the decision as all or nothing. You do not necessarily need to choose between keeping every dollar in savings and using every dollar to repay debt.
2. Mental accounting separates savings from debt
Behavioral economists call this mental accounting. People mentally assign money to categories such as:
- Emergency fund
- Rent and bills
- Vacation
- Home repairs
- Debt repayment
- Spending money
In theory, money is interchangeable. In practice, a dollar labeled “emergency fund” can feel unavailable for debt repayment, even when using part of it would improve the household’s overall financial position.
This helps explain why someone can say, “I have savings, but I cannot touch it,” while continuing to pay interest on a card balance.
3. Debit can feel safer for everyday purchases
The Batista, Mao, and Sussman study offers a more surprising explanation. Co-holders often preferred using debit or cash for routine expenses, while reserving credit cards for large or unexpected purchases.
That preference can create a cash flow trap. If everyday spending comes directly from checking, consumers want to preserve enough cash to cover groceries, gas, utilities, and other recurring expenses. When a large unexpected purchase goes on a credit card, they may keep the debt outstanding so their checking account continues to support daily life.
The study found that changing participants’ views about using credit cards for everyday purchases increased the amount of hypothetical debt they were willing to repay. The finding is important, but it should not be interpreted as a recommendation to put all daily spending on credit. Credit cards can make spending less visible, and rewards can encourage larger purchases.
4. Convenience lowers the emotional cost of borrowing
Tapping a card or phone is easy. The payment is separated from the moment of purchase, and the account balance may not feel real until a statement arrives.
That convenience has value, but it can also obscure the cost of borrowing. A $100 purchase may feel manageable at checkout. At a high APR, however, carrying that purchase for months turns it into a more expensive obligation.
Rewards add another layer. Cash back and points can make a purchase feel financially productive, even when the interest charged on the unpaid balance is several times larger than the reward.
The Hidden Cost of Holding Cash
Consider a simplified example:
- Credit card balance: $2,000
- Card APR: 23%
- Savings yield: 4%
If the balance remains unchanged for a year, the card could generate roughly $460 in interest before considering daily compounding and payments. The same $2,000 in savings would earn about $80 at 4%.
The difference is approximately $380 per year.
That does not mean every person should empty savings immediately. It means the cash has an opportunity cost. Keeping money in a deposit account while carrying high-interest debt is effectively choosing to pay a premium for liquidity.
The University of Chicago and Stanford study illustrated the spread differently. For every $100 held in savings and debt, the typical co-holder earned about $0.75 on savings while paying nearly $15 in credit card interest over the same period.
A Practical Cash Flow Plan
Step 1: Identify the cash you truly need
Separate your deposit balances into three categories:
- Immediate bills: Money needed for rent, utilities, food, insurance, and scheduled payments.
- Emergency reserve: Cash for genuine surprises, not routine overspending.
- Surplus cash: Money that is not assigned to a near-term need or essential reserve.
Do not use money needed for bills to pay down a card. That simply shifts the problem to another account.
Step 2: Keep a starter emergency buffer
The right amount depends on income stability, family responsibilities, health risks, and access to other resources. A household with variable income may need more cash than a dual-income household with stable employment.
As a starting point, consider keeping approximately one month of essential expenses, or a smaller starter reserve if your current savings are limited. Then rebuild toward a larger emergency fund after high-interest debt is under control.
Step 3: Attack the most expensive balance
Pay at least the minimum on every account. Direct extra cash toward the card with the highest APR, which is the debt avalanche method.
If motivation is your biggest challenge, the debt snowball method, starting with the smallest balance, can provide faster psychological wins. The best method is the one you can follow consistently.
Step 4: Stop replenishing the balance
A payoff plan fails if new charges continue to exceed payments. For routine purchases, use the payment method that gives you the clearest spending feedback. Set up automatic transfers and payment reminders so the plan does not depend on willpower alone.
For more help, review ATMC’s resources on building a long-term wealth mindset and the benefits of using a digital wallet.
The Bottom Line
Carrying credit card debt while holding cash is not always careless. Some savings may be needed for bills, emergencies, or income uncertainty. But when excess cash sits in a low-yield account while a card balance compounds at a much higher rate, convenience becomes expensive.
The goal is not to eliminate your safety net. The goal is to make your cash flow work harder. Keep a realistic reserve, calculate the cost of the interest rate spread, and use surplus cash to reduce the debt that is draining your future income.
Frequently Asked Questions
Does carrying a credit card balance improve my credit score?
No. Carrying a balance does not help your credit score. Paying on time and keeping credit utilization under control are more important.
Should I use all my savings to pay off credit card debt?
Usually not. Keep enough cash for essential bills and a reasonable emergency reserve. Using every dollar may leave you vulnerable to taking on new debt after an unexpected expense.
What is the credit card debt puzzle?
It is the behavior of holding liquid assets, such as checking or savings balances, while also carrying high-interest revolving credit card debt.
Is the 23% figure a national U.S. statistic?
No. The 23% figure comes from a study of customers connected to a large Australian retail bank. It should not be treated as a nationally representative U.S. estimate.
Who created the study behind the 23% finding?
The study was created by Rafael M. Batista of the University of Chicago Booth School of Business, Ella Mao of Stanford Graduate School of Business, and Abigail B. Sussman of the University of Chicago Booth School of Business.
What is the debt avalanche method?
You pay minimums on all debts and direct extra money to the balance with the highest interest rate. This usually minimizes total interest.
What is the debt snowball method?
You pay minimums on all debts and direct extra money to the smallest balance first. This can create quick wins and help some people stay motivated.
Can rewards make credit card debt worthwhile?
Rewards rarely outweigh interest charges when you carry a balance. Rewards are most useful when you pay the statement balance in full and avoid changing your spending merely to earn points.
Should I use a balance transfer card?
A balance transfer may reduce interest during a promotional period, but it can involve a transfer fee and usually has a deadline. Compare the fee, promotional period, regular APR, and your repayment capacity before applying.
What if I cannot afford more than the minimum payment?
Contact your card issuer before missing a payment. You can also review your budget, ask about hardship options, and seek guidance from a nonprofit credit counseling agency. Avoid taking on new high-cost debt to cover old balances.
