| January 27, 2017

Research of the Week: Do You Live Where It’s Easy to Repay Debt?

Where you live can have a major impact on how easy it is to get out of debt.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

The financial experts at SmartAsset have released their second annual study on the Best Cities to Get out of Credit Card Debt. The idea is that where you live can have a significant impact on your ability to get out of debt. It’s based on factors, like:

  • How much the average resident earns
  • The average cost for housing in that area
  • The cost of living in that area
  • Taxes

If you live where income levels are high relative to total cost of living, then it’s easier to eliminate debt. You should have more cash flow available to pay more than the minimum payment requirements on your credit cards. As a result, it’s easier to pay off your debt quickly and minimize interest charges.

The big result

The cities where it’s the easiest are highly specific and not isolated in one particular region of the country. In other words, just 50 miles difference in where you live can significantly affect how easy it is to eliminate debt.

The fascinating details

Let’s take Smart Asset’s Number One Easiest City to Get Out of Debt: Anchorage, Alaska:

  • In this study, Anchorage is at the top largely because residents have a robust average salary. Median income is $78,662 in Anchorage
    • That’s notably higher than $69,629 average annual income nationwide reported by the Bureau of Labor Statistics
    • Even residents with only a high school diploma earn $37,422 average annually
    • So as a result, residents who focus can pay off their average credit card balance of $5,323 within about 6 months
  • HOWEVER…
    • That ease of debt repayment doesn’t carry over to other parts of Alaska.
    • As a result, the state as a whole sits at Number One on the list of states with the highest debt burdens, sharing the spot with New Mexico
    • Alaskan borrowers as a whole also have higher rates of default, so they have more debts in collections, along with higher student debt burdens

The same logic can be applied to the Number 3 spot on this list, Bakersfield, California. While it may be easy to repay debt in Bakersfield, the rest of California’s residents are not as lucky. Residents in San Diego, Los Angeles and Long Beach are reportedly being priced out of homeownership. Housing costs are so high that residents have limited resources for everything else in their budget. In San Francisco, rental costs rose by almost 15% in one year. It’s one of the least affordable places to live in the country now.

What you can do

“Moving to make it easier to repay debt as a short-term strategy doesn’t make much sense,” says Maria Gaitan, Housing Director of Consolidated Credit. “However, you should carefully consider things like cost of living and affordability as you plan for the long-term. As you sign your next rental agreement or apply for a mortgage, cost of living concerns need to be a big part of that discussion.”

Gaitan encourages people to reach out to speak with a HUD-certified housing counselor. Counselors may be able to help you identify ways overcome cost of living challenges. This is especially true if you live in an area which high median mortgage and rent levels.

“These days, housing costs and cost of living can vary greatly, not just by state or by county, but even by municipality,” Gaitan explains. “Moving 30 minutes away may increase your commute time, but it may also make it easier for you to manage your finances in the long-term.”

Gaitan also explains that certain municipalities can be more favorable for first-time homebuyers. They may offer homebuyer assistance programs that can help reduce housing costs so you have more money available for things like debt elimination.

“The way money is divided at the federal, state and even local municipal levels is very specific,” Gaitan says. “As a result, it’s in your best interest to talk to a housing counselor who is familiar with all of the assistance options available in your area.”

If you’re thinking about buying a home or making a move this year and you need some help, call Consolidated Credit at 1-800-435-2261. Our HUD-approved housing counselors are trained to help Florida homebuyers where we’re based. However, they can also refer you to other HUD-approved agencies where you live.

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