The heterogeneous reactions of household credit to income shocks

We examine the effect of local income shocks on households’ debt portfolios aggregated to the zip code level. Households with stronger credit standing and lower leverage actively deleverage across multiple products, whereas some more vulnerable groups expand auto borrowing despite reducing other types of debt. These findings highlight balance-sheet repair, rather than spending, as a priority even among those with few resources. By highlighting the varied ways different households and credit products respond to shifts in income, our study calls for more nuanced policy approaches that account for heterogeneity in both borrower characteristics and debt composition.