A new study finds residents in the South may be struggling the most to pay off their credit cards.
Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…
The interesting study
CreditCards.com conducted a study of 25 metropolitan areas in the U.S. by looking at Experian credit data from 2017. They compiled statistics that assessed:
- Months to pay off total credit card balance
- Accrued interest charges
- Median income earnings
- Number of cards
- Average balance per card
Looking at all this data at once, they compiled a list of the cities with the highest credit card debt burden, as well as the lowest.
The big result
San Antonio and Miami topped the list of the cities with the highest credit card debt burdens. By contrast, residents in San Francisco and Minneapolis had the lowest burdens.
The fascinating details
Cities with the highest credit card debt burdens take longer to pay off debt. In many cases this was due, at least in part, because of low median income levels. Miami and San Antonio both had low median income compared to other cities evaluated. However, median earnings in Minneapolis weren’t exactly high at just over $38,000. People in D.C. had the highest earnings at over $46,500. However, they did not have the lowest burden, because they borrowed more than other areas.
As the study points out, everything is bigger in Texas, including credit card debt. Of the top 5 cities with the highest credit card debt burdens, three are in Texas – San Antonio, Houston and Dallas-Fort Worth. Los Angeles rounds out the Top Five.
The states with the lowest credit card debt burden also include Boston, D.C. and Seattle. It’s worth noting that Detroit is also counted as a success story. Most cities stayed around the same position they ranked in last year. However, Detroit moved down to become the ninth lowest debt burden. Even though they have low median income earnings, they now also have lower debt, too.
What you can do
“People need to be more aware of how much debt they carry relative to their income,” explains Gary Herman, President of Consolidated Credit. “If you make less, it means you have less breathing room to run up debt. Checking your credit card debt ratio is a good way to make sure you’re not overextended.”
Credit card debt ratio measures how much revolving debt you have relative to your income. It compares the total minimum payment requirements on your credit cards to your total monthly income. Ideally, your ratio should never exceed more than 10%. So, if you make $3,000 per month, your total credit card payment requirements should never exceed $300.
“Checking your credit card debt ratio gives you an easy way to see where you’re overextended with credit card debt,” Herman continues. “People with the highest credit card debt burdens tend to have lower credit scores and more problems with late payments. Knowing your ratio can give you the early warning sign you need to find solutions before debt becomes a real problem.”