Cross-Country Credit Card Debt Crisis

Which states carry the most credit card debt in the U.S.?

American households are set to hit a dubious milestone this year – all signs point to the fact that by the end of 2016 U.S. consumers will hit $1 trillion in credit card debt. This puts us close to pre-recession debt levels seen prior to the crash. It has many financial experts concerned that most households are nearing unsustainable levels of debt.

A new study by the credit card debt experts at Credio breaks down unsustainable debt levels by state, looking at which states have the most and least credit card debt in the nation. States were ranked according to debt load per capita (per individual); the study also assessed credit card delinquency rate by state.

The 5 worst states for credit card debt per capita are:

  1. Alaska: $3,920 with a delinquency rate of 5.36%
  2. New Jersey: $3,620 with a delinquency rate of 7.7%
  3. Hawaii: $3,460 with a delinquency rate of 6.97%
  4. Connecticut: $3,460 with a delinquency rate of 6.72%
  5. Virginia: $3,460 with a delinquency rate of 6.17%

Compared to 5 best states with the lowest credit card debt per capita:

  1. Mississippi: $1,740 with a delinquency rate of 6.9%
  2. West Virginia: $2,040 with a delinquency rate of 7.45%
  3. Arkansas: $2,050 with a delinquency rate of 7.63%
  4. Kentucky: $2,100 with a delinquency rate of 6.75%
  5. Alabama: $2,110 with a delinquency rate of 7.45%

The map shows that many of the worst states for credit card debt are in the west and the northeast, while southern states actually have some of the lowest debt per capita. What’s interesting is that the order of this rank runs a bit contrary to other data studies in the U.S., such as the credit use study and state of credit study, both conducted by Credit Sesame earlier this year. In both of those, the south ranked low while the west and the northeast ranked high. So what gives?

Debt per capita vs. debt per credit user

Part of the reason the studies may seem to contradict each other is that this study measures debt per capita. In other words that’s the debt relative to the total adult population of the state. By contrast, the other studies only assessed credit card debt per borrower – i.e. the totals don’t include people who live in the state and don’t use credit at all. The other studies also take into account other factors, such as credit limits and utilization ratios.

That makes sense if you start to drill down in the numbers. For instance, Mississippi ranked well in this study but poorly in the other two while New Jersey ranked badly in this study but well in the others. Let’s look at the debt side by side:

Mississippi New Jersey
Debt per capita $1,740 $3,620
Average debt per credit user $3,364 $5,767
Average credit limit $10,111 $25,293
% of people over limit 19.5% 10.1%
Credit utilization ratio 65.7% 48.2%
Delinquency rate 6.9% 7.7%

As you can see, New Jersey borrowers have higher debt levels, but they also have high credit limits. So they’re using less than 50% of their available credit lines on average and only 1 in 10 borrowers goes over their credit limit. By contrast, Mississippians, on average, have about 40% of the available credit that their New Jersey counterparts do. So they’re using about two third of their available credit lines and 1 in 5 borrowers is over limit.

Debt-to-income is most important for you

“State rankings of debt can be interesting, but at the end of the day it’s about making sure you have a sustainable level of credit card debt for your household,” argues Gary Herman, President of Consolidated Credit, “and that’s highly personal. The dollar amount of your debt is not as important as the measure of your debt relative to your income.”

Debt-to-income ratio measures the amount of debt you hold versus how much money you bring in. Total debt including a mortgage, auto loans, student loans and other debts should be less than 36 percent in order to maintain financial stability. Depending on what other debts you have, you may have the capacity to handle higher credit card debt payments without putting your stability at risk. However, in general credit card debt payments should only use up 10% or less of your monthly income.

“There’s no financial benefit to carrying credit card debt,” Herman explains. “You don’t need to carry balances over month to month to achieve a high credit score and the closer you get to zero credit card debt, the less likely you are to face financial distress. So with that in mind, ANY credit card debt that’s being carried over month after month is too much debt.”

If you’re carrying balances over month to month and you need help crafting a strategy that will get you to zero, we can help. Call Consolidated Credit today at 1-888-294-3130 or complete an online application to request a confidential debt, budget and credit analysis from a certified credit counselor at no charge.

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