Research and Statistics

Debt rises by 5 percent in top 20 cities


A study by the credit bureau Experian shows borrowing is on the rise again in 19 of the 20 biggest U.S. cities, with Dallas, Houston leading the way

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With the recession fading in the rearview mirror, consumers are once again loading up on debt and carrying larger balances on credit cards, auto loans and student loans, according to a study released Tuesday.

In the past four years, average U.S. consumer debt has risen 5 percent, to $25,927, according to the credit-reporting bureau Experian. In 2010, the same measure of national stood at $24,678. The report also examined the debt levels in the top 20 U.S. metro areas and found that everything really is bigger in Texas, with Dallas and Houston as No. 1 and No. 2 in per-capita consumer debt. Detroit was 20th.  (See map and data: Top 20 cities’ debt, credit scores)

Major city debt and Vantage Score averages

The debt increase is significant because it marks a reversal of the trend that began in 2008 and 2009, when consumers began paying down debts as the economy crumbled and banks became stingier in making loans. The Experian study is in line with other recent research that shows that consumers are once again becoming comfortable with debt as the economy improves.

Michael Walden, an economist at North Carolina State University, says rising debt levels are not necessarily cause for concern. As long as personal income is also rising, consumers should be able to manage the increased debt without damage to the economy.

“Since the recession ended, and we have been growing economically, debt has begun to climb, but not to alarming levels,” he says. “That’s just the natural process. Debt is up, but it’s actually a sign of economic improvement rather than a question about consumers overdoing debt.”

In February, the Federal Reserve Bank of New York reported that total consumer debt in the fourth quarter of 2013 rose by $241 billion, to $11.5 trillion — the largest year-over-year increase since 2007. Still, total debt remains 9 percent less than its peak in 2008, the Fed said.

About 70 percent of the debt, the Fed said, comes from mortgages, followed by student loans (9 percent), auto loans (7 percent) and credit cards (6 percent).

Consumers appear able to handle the increased debt, because the percentage of income they are spending on credit cards and other loans is around a 30-year low, Walden says.

Michele Raneri, Experian’s vice president of analytics, said the company’s study backs up that idea, since the average credit score stayed at 665 between 2010 and 2014.

“People are more comfortable taking out more credit, and yet their scores aren’t suffering. That shows they can handle more debt,” she says.

Regional differences
The Experian report, which excluded real estate loans, said that of the top 20 cities, 19 had higher average debt than they did four years ago.

Cities with the highest average debt loads tend to be those whose economies have fared well in recent years. The most indebted cities — Dallas, Houston, Washington, Seattle and Baltimore — all had unemployment rates of 6 percent or lower in March, below the national average of 6.7 percent, according to the Bureau of Labor Statistics.

Although there has been a pent-up desire to begin spending again, we hope they don’t commit the financial sins of the past.

— Gail Cunningham
National Foundation for Credit Counseling

Leading the way was Dallas, with an average debt per consumer of $28,240. Dallas’ economy has benefited from the growth of the energy, high-tech and health care sectors, and it’s in the middle of a housing boom, says Steven Shwiff, an economist at Texas A&M University at Commerce. Just this week, Toyota announced it is moving its U.S. headquarters from California to Plano, a Dallas suburb.

“Those are the kinds of things you’d expect to make people feel more comfortable about incurring a little more household debt that you would see in, let’s say, Las Vegas,” Shwiff says.

At the bottom of the debt list is Detroit ($23,604), the only city to lower its average debt since 2010. Its unemployment rate in March was 8.3 percent.

The study also examined average credit scores. At 702, Minneapolis had the highest average of the 20 cities. Dallas, Houston and Miami tied for lowest, at 648.

Avoiding financial sins
Despite the increased appetite for debt, consumers appear to be cautious about taking on too much too fast, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

“Although there has been a pent-up desire to begin spending again, we hope they don’t commit the financial sins of the past,” she says. “Even if spending has increased, the point is, how did they manage their debt obligation? It appears they are managing it responsibly.”

Nonetheless, a March 2014 NFCC survey showed that people aren’t eager to reveal their debts. The survey showed that three times as many people would be embarrassed to reveal the amount of their credit-card debt than their weight.

The main problem that credit counselors see, Cunningham says, is people who wait too long before taking action. Faced with economic problems, too many ignore the issue and wish it away instead of taking action.

“A lot of times, people think tomorrow will be better and don’t do anything to resolve the problem,” she says. “If they wait too long to reach out for help, it only makes matters worse.”

The credit bureau Experian analyzed the credit scores and average credit card, auto loan and student loan debt totals for the top 20 American cities. Click on a city to reveal its data.

See related:Average credit card debt: by the (many) numbers, Credit card statistics

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