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Alaska, New Mexico have heaviest card debt burdens

North Dakota, Iowa have lightest debt

By

Debt Burden

 

Alaskans carried the heaviest credit card debt burden in the U.S. in 2016, while North Dakota consumers had the lightest.

CreditCards.com weighed the debt loads of Americans by comparing average credit card balances in each state to the median earnings. In other words, the debt burden measures not just card balances, but also the money available to pay them off.

States are ranked by how quickly residents can erase the average card balance, using 15 percent of their earnings. On that basis it would take Alaskans 20 months and $992 in interest to wipe out their average card debt of $7,552.  

North Dakotans are at the other end of the debt scale. With 15 percent of their earnings, they manage to pay their $4,599 average balance in just 12 months, while racking up $370 in interest. That's eight months sooner than their neighbors to the far north, and one-third less in interest.

"The variability between the best and the worst state is high" when it comes to handling debt, said John Pelletier, director of the Center for Financial Literacy at Champlain College in Burlington, Vermont.



Highest Debt Burdens
Rank No. 1: Alaska
Average Credit Card Balance $7,552
Median Earnings $35,552
15% Monthly Earnings $444
Months to Pay Off 20
Interest to Pay Off $992
Average Debt $42,664
90+ Day Delinquency 34%
Rank No. 2: New Mexico
Average Credit Card Balance $5,615
Median Earnings $26,244
15% Monthly Earnings $328
Months to Pay Off 20
Interest to Pay Off $743
Average Debt $40,084
90+ Day Delinquency 39%
Rank No. 3: Georgia
Average Credit Card Balance $5,953
Median Earnings $30,284
15% Monthly Earnings $379
Months to Pay Off 18
Interest to Pay Off $716
Average Debt $41,201
90+ Day Delinquency 40%
Rank No. 4: Texas
Average Credit Card Balance $6,009
Median Earnings $31,038
15% Monthly Earnings $388
Months to Pay Off 18
Interest to Pay Off $712
Average Debt $40,092
90+ Day Delinquency 44%
Rank No. 5: Florida
Average Credit Card Balance $5,603
Median Earnings $28,381
15% Monthly Earnings $355
Months to Pay Off 18
Interest to Pay Off $678
Average Debt $39,656
90+ Day Delinquency 38%


Lowest Debt Burdens
Rank No. 46: Wisconsin
Average Credit Card Balance $4,693
Median Earnings $31,474
15% Monthly Earnings $393
Months to Pay Off 14
Interest to Pay Off $421
Average Debt $34,660
90+ Day Delinquency 23%
Rank No. 47: Massachusetts
Average Credit Card Balance $5,565
Median Earnings $38,648
15% Monthly Earnings $483
Months to Pay Off 13
Interest to Pay Off $482
Average Debt $40,701
90+ Day Delinquency 21%
Rank No. 48: Minnesota
Average Credit Card Balance $5,170
Median Earnings $35,147
15% Monthly Earnings $439
Months to Pay Off 13
Interest to Pay Off $458
Average Debt $37,236
90+ Day Delinquency 17%
Rank No. 49: Iowa
Average Credit Card Balance $4,410
Median Earnings $30,916
15% Monthly Earnings $386
Months to Pay Off 13
Interest to Pay Off $379
Average Debt $35,243
90+ Day Delinquency 22%
Rank No. 50: North Dakota
Average Credit Card Balance $4,599
Median Earnings $34,336
15% Monthly Earnings $429
Months to Pay Off 12
Interest to Pay Off $370
Average Debt $41,079
90+ Day Delinquency 20%

Weighing the costs
Pelletier's center issues a state-by-state financial report card that rates consumers' money management ability. One striking lesson he sees from the Adult Financial Literacy Report is the wide gap between states where consumers are managing their finances well -- and states that aren't.

Managing debt carefully is getting more important now that interest rates are on the rise. Federal interest rate-setters voted last week to raise their benchmark rate by a quarter point -- one of four hikes they expect to complete by the end of 2017. That will ratchet up APRs and minimum payments on credit card balances, as banks raise their prime rate.

"This is the time for people to go back to their budget ... and make sure it is in tune, to prepare for higher payments," said Martin Lynch, director of education at Cambridge Credit Counseling in Massachusetts.

Lessons from the states
Of course, keeping card use under control is an important part of keeping the debt burden low. The five states with the heaviest debt burdens all had average card balances higher than the U.S. average. Alaska's $7,552 average balance was the largest in the U.S. -- one-third higher than the national average of $5,551.

Incomes also play an important role. New Mexico has the second-heaviest debt burden after Alaska, but its average balance of $5,615 is only $64 more than the U.S. average. What makes the debt difficult to carry is New Mexico's below-average earnings of $26,244 a year. Only Idaho has lower median earnings. Consequently, it takes the median New Mexico worker 20 months and $743 in interest to pay off the average card debt.

One piece of good news from the analysis of debt burdens: Having a high income is not required for keeping credit cards under control. In fact, many lower-income states have lighter debt burdens than their wealthier neighbors. Iowa, for example, has the second-lowest debt load in the nation, despite a middle-of-the-pack income at No. 25.

"It's a farming community," said Karen Atwood, CEO of Consumer Credit Counseling Service of Northeastern Iowa, based in Waterloo. "People who come from rural areas don't have as big expectations as people who come from big cities."

Iowans have the lowest balances on cards, at $4,410. But they could spend more if they wanted to do so. The "utilization rate," or the portion of the available credit line that Iowans use, is the lowest in the U.S. At 25 percent, the state's average credit utilization is substantially below the U.S. average of 30 percent -- and a far cry from high debt-burden states, such as Alaska, at 36 percent.

That indicates cultural factors, such as discipline and frugality, are at least partially responsible for helping Iowans keep their card debts low.

"I go into high schools to give talks -- some (students) have a throwaway mentality, but there are other kids -- these are ones their parents have been teaching -- who know they'll have to be careful," Atwood said. "They know they'll have to start out at the bottom and not have everything at once."

Human nature versus the environment
Penny-pinching is only part of the story, however. External factors, such as the economy and demographics, can affect people's credit card debt levels. For example, Iowa's population skews older than the national average, and older people tend to have less card debt, wherever they live.

In Alaska, the economy may be boosting credit card use. The state is not only No. 1 in terms of its debt burden -- it also has the highest jobless rate of all the states. Alaska's 6.8 percent unemployment rate in November 2016 was more than double North Dakota's 2.9 percent rate, amid a sharp slowdown in Alaska's energy-centric economy.

"Low oil prices and the long-term effects on oil and gas extraction, support services, construction and state government are reducing job counts in occupations that have shown strong growth in the last decade," state economist Paul Martz wrote in an October job forecast.

When consumers are hit by a job loss or a cut in working hours, they often turn to cards to fill the income gap, credit counselors say. With typical credit lines of $2,500 to $5,000, a credit card has more spending power than many households have in their emergency savings.

"Reliance on credit is what gets them through those gaps in income," Lynch said.

So it isn't surprising when states with high credit card debt burdens also have struggling economies. New Mexico, with the second heaviest card debt burden behind Alaska, has the second-worst unemployment rate, according to the Bureau of Labor Statistics.

In Georgia, with the third greatest debt burden, low employment and under-employment from a long decline in the textile industry have forced people to turn to credit for stopgap spending, said Mary Riley, director of Consumer Credit Counseling Service of West Georgia/East Alabama.

"While people are in the process of looking for other jobs -- or many people are settling for whatever job they can get -- they already have a credit card, so they're utilizing their credit," she said.

The economy can help as well as hurt. In North Dakota, where the 3 percent unemployment rate is third-best in the nation, it's not difficult to find jobs to stay financially afloat, said Joshua Huffman, credit counseling program manager for The Village Family Service Center in Fargo. The state's image may be of rural farmland, but there's actually a diverse economy with manufacturing and technology employers, as well as a now-cooling oil and gas boom in the state's western half.

"We're booming with jobs. We've got lots of jobs available," Huffman said.

Card debts hurt credit scores
Short of moving to a region with more jobs, there's not much that individual consumers can do about the economy where they live. But people in industries that are prone to layoffs can make an extra effort to fill up an emergency savings fund during the good times.

The benefits of a lighter card debt burden go beyond the mere interest it will cost to dig out of card debt. Not surprisingly, states with lighter card debt loads have better credit scores than others, according to credit report data from Experian. Debt-heavy Alaska has an average credit score of 668 -- 30 points lower than North Dakota.

Pelletier calls credit scores a major pocketbook issue for consumers. Champlain College's financial literacy report examines a hypothetical Ohio consumer with bad credit who would pay $293,409 in interest over her lifetime. The same person, but with good credit, would pay $155,000 less.

"The average American is going to pay well over $100,000 in interest over their life," he said, "but one person could pay double someone else, just because they have bad credit."

Analysis methodology
To measure the burden of credit card debt, CreditCards.com analyzed how long it would take to pay off the average credit card balance using 15 percent of the median earnings for that state. Figures for credit card debt came from bank card balances published in Experian's State of Credit report for 2016. Median earnings came from the U.S. Census Bureau's American Community Survey one-year estimates for 2015. CreditCards.com's balance payoff calculator was used to calculate the months to pay off the debt. The interest rate variable used was 15 percent, based on the Creditcards.com weekly rate survey of 100 card offer rates. The 15 percent figure is a portion recommended by credit counselors for debt repayment plans. States were ranked first on the months necessary to pay off the debt, with the interest cost as a tiebreaker.

See related: Cities with the biggest, smallest credit card debt burdens

Published: December 21, 2016

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Updated: 01-18-2017

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