Credit card debt weighs heavy on southern states

New Mexico carries the nation’s heftiest debt load; Massachusetts has the lightest

Allie Johnson
Personal Finance Writer
Award-winning writer covering consumer and small-business credit cards.

Credit card debt weighs heavy on Southern states 

What’s the state of credit card debt in the United States? A new study shows how credit card debt load in each state stacks up against the rest of the country.

The analysis by CreditCards.com found New Mexico carries the heftiest debt load in the nation while Massachusetts has the lightest. And Southern states took nine of the top 10 spots for states most burdened by debt.

To determine state debt loads, CreditCards.com looked at average balances on bank and retail credit cards in each state and calculated how long it would take a cardholder to get rid of debt if they put 15 percent of the median household income toward repayment each month. The study also tallied up how much total interest the cardholder would pay. See methodology

Education, income factors lead to credit issues in the South   

It would take New Mexico residents 17 months to pay off their average total credit card debt of $8,323 by paying almost $585 a month, and they’d fork over almost $1,320 in interest. In the states with the second and third biggest debt loads, Louisiana and West Virginia, it would take about the same amount of time to get out of card debt.

At the opposite end of the debt load list, it would take Massachusetts residents only nine months to pay off their average total debt of $7,994 by paying about $968 a month, and they would pay about $710 in interest. In Wisconsin, the state with the second lightest debt load, it would take 10 months to get out of debt.

What does this mean for consumers and their wallets? A cardholder in the state that ranked best could wipe out debt eight months faster and pay $500 less in interest charges than one in the state ranked worst.

Experian data shows credit scores generally tend to be lower in the South, and credit utilization rates, are higher, says Rod Griffin, director of public education for Experian. 

In fact, Mississippi had an average credit score of 647, the lowest in the nation, according to the most recent State of Credit report from Experian, which was released in January 2018. Louisiana came in second-to-last with an average score of 650, followed by Georgia and Alabama.

Why? There are likely many variables, including cultural issues, education levels and income, that affect the relationship with credit in a region, Griffin says.

“It's a combination of many factors,” he says.

See related: How to slay your credit card debt with 'small wins'  

Highest debt burdens

RankStateAverage Credit Card BalanceMedian Annual Household Income15% Monthly EarningsMonths to Pay OffInterest to Pay Off
1 New Mexico $6,317 $46,744 $584.30 17 $1,319.59
2 Louisiana $6,074 $46,154 $576.81 17 $1,266.61
3 West Virginia $5,547 $43,469 $543.36 17 $1,167.14
4 Alabama $5,961 $48,123 $601.54 16 $1,162.99
5 Arkansas $5,660 $45,869 $573.36 16 $1,150.67

The state of debt where you live

Depending on where you live, the debt load may have improved or worsened quite a bit over the past few years. Since CreditCards.com did a similar analysis in 2016, 18 states either rose – or slipped – more than 10 spots in the rankings. 

For example, California’s debt load lightened considerably, with the state falling from a middling spot at number 19 to one of the lowest at number 45. That means only five states have a lighter debt load. Other states that dropped down the list, or improved significantly, include:

  • Colorado, from 17 to 27
  • Hawaii, from 18 to 46
  • Idaho, from 7 to 20

At the other end of the spectrum, several states rose notably, or worsened, in the rankings:

  • West Virginia, from 30 to 3
  • Louisiana, from 21 to 2
  • Mississippi, from 29 to 6

Overall, those changes were driven more by income than amount of debt. That means if a state rose in the rankings, income gains there probably lagged. And if a state fell, income likely grew faster than the national average. In 2017, income growth in the Western states outpaced much of the rest of the country, according to the U.S. Bureau of Economic Analysis.

However, that’s not always the case. Alaska took first place for heaviest debt load in 2016. But the state has since plunged to 12th place, improving despite glacial income gains through 2017 and much of 2018. And Alaska still has the largest total credit card debt of any state, an eye-popping $10,685.

“Alaska is unique,” Griffin says, pointing to the state’s geographic isolation and the annual oil dividend paid to each Alaskan. “You can’t compare Alaska to any other state.”

So, does the dividend, which was $1,100 in 2017, make Alaskans more likely to rack up credit card debt through the year? Griffin isn’t sure, but says that it’s generally not a good idea to spend on credit in anticipation of a windfall.

“We try to teach people, don’t bank on the bonus,” he says.

See related: More consumers getting turned down for credit cards, Fed says

In 2017, income growth in the Western states outpaced much of the rest of the country.

Other factors figure into debt burden

The survey looked at an average cardholder in each state, but experts point out that each individual situation is different. Looking only at household income, a cardholder’s total card balance and interest rate might not tell the whole story when it comes to his ability to repay debt.

For example, costs of living are much lower in certain areas than in others, says Melinda Opperman, chief relationship officer for Credit.org, a non-profit agency that offers financial advice and coaching. 

Housing costs can have a huge impact on a household budget and ability to repay debt. 

“We have clients all over the United States, and the range that people pay for their rent or mortgage is pretty big,” she says.

For example, in the US News 2018 state affordability ranking, the top three states with the lowest housing costs are: Ohio, Indiana and Iowa. The state with the highest housing cost is Hawaii, followed by California and Colorado. New Mexico ranks number 33, meaning housing costs more in only 17 states.

Other variables that may factor into debt repayment speed and ease include age, demographics and personal money management skills. 

“There are so many factors that are involved in a person's financial life,” Griffin says.

Lowest debt burdens

RankStateAverage Credit Card BalanceMedian Annual Household Income15% Monthly EarningsMonths to Pay OffInterest to Pay Off
46 Hawaii $6,981 $77,765 $972.06 10 $784.95
47 Utah $5,960 $68,358 $854.48 10 $750.54
48 Minnesota $5,911 $68,388 $854.85 10 $679.74
49 Wisconsin $5,363 $59,305 $741.31 10 $657.40
50 Massachusetts $6,327 $77,385 $967.31 9 $708.46

Determined to lighten your debt load?

Are you overloaded with debt and hoping to lighten your load? Here are three ways to repay debt more quickly to improve your financial position in the coming year:

1. Slash your interest. 

In many states, the average cardholder would pay over $1,000 in interest even when repaying debt at a steady pace. One way to cut that cost is to apply for a balance transfer credit card

Many cards offer 0 percent interest deals for introductory periods ranging from 15 to 21 months. Keep in mind that many cards charge a balance transfer fee, typically 3 or 5 percent of the balance being transferred

“Most of the time that fee is going to be cheaper than the interest you’d pay,” says J.R. Duren, senior editor and personal finance analyst for the consumer information site HighYa.com.

2. Increase your income. 

As this survey shows, higher income can dramatically reduce the amount of time it takes to pay down debt and the total interest you pay. If you have a job, asking for a raise might be the quickest route to a larger income. Or, start a side hustle to pay off debt.

Choose an area that doesn’t require a big initial investment or a major learning curve to get started, Duren recommends. For example, his side gig is selling on eBay, but he sticks with products related to his hobbies because he has expertise in the market. 

“When you have debt, you want to get started earning money right away,” he says.

3. Get credit counseling. 

Seeking help from a nonprofit credit counseling agency might be your best bet if you have debt on multiple credit cards and you’re struggling to make minimum payments, Opperman says.

Credit counseling agencies offer debt management plans (DMP) that may be able to get you lower interest rates and lower monthly payments to make your debt more manageable. With a DMP, you make one monthly payment to the agency, which disburses the funds to your creditors. As part of a DMP, you typically are required to stop using your credit cards, forcing you to switch to debit or cash. 

“Many of our clients have told us that the best solution for them was to stop using credit cards altogether,” Opperman says.

No matter what state you live in, or what state your debt is in right now, the principles are the same for managing and getting out from under a big debt load. But you have to take action.

“The situation is only going to get worse if you don’t come up with a plan to conquer the debt trap,” Opperman says.

Methodology

CreditCards.com calculated these payoff times and interest charges using the average credit card debt per bank and retail cardholder (according to Experian) and the median household income (courtesy of the U.S. Census) in each state. CreditCards.com assumed 15 percent of gross monthly income would go toward credit card debt. For the average credit card interest rate, CreditCards.com used 20.80 percent, the median APR for all credit card accounts according to CreditCards.com data.


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Updated: 12-13-2018