Where Americans are most burdened by credit-card debt
Alaska residents owe the most on their credit cards, but they’re more likely to pay it off faster than residents of New Mexico, who carry the highest debt burden — or credit card debt in relation to income — among all 50 states, according to a report released Monday.
There’s a big variety in the factors that contribute to one’s ability to pay down debt, such as income and unemployment. Average card debt doesn’t vary much by state, but states where residents have lower incomes require more time to pay down their balances.
“Unemployment and credit scores can go hand-in-hand with some of same factors we used, like card debt and income,” Ted Rossman, an analyst at CreditCards.com, told CBS MoneyWatch.
Alaskans, on average, owe $10,685 in combined bank and retail card debt, according to an analysis by CreditCards.com. Yet their median household income of $73,181 allows them — assuming they set aside 15 percent of what they make to pay down debt — to erase it in 14 months.
New Mexicans, on the other hand, are in the hole to credit-card companies by an average of $8,323, CreditCards.com found. Yet their annual pay of $46,744 means that setting aside 15 percent would take 17 months to clear the debt.
In comparison, it would take just over a year, or 13 months, for the average American family with $60,336 in annual income to clear the typical credit card balance of $8,195, the report found. The average household would pay $964 in interest during that time, as opposed to the $1,320 in interest paid by New Mexicans in their longer-term effort.
After New Mexico, the 10 states with the greatest credit card debt — relative to income — are in the South: Louisiana, West Virginia, Alabama, Arkansas, Mississippi, Georgia, Oklahoma, Florida, South Carolina and Tennessee.
The five states with the highest debt burdens rank among the six lowest in terms of median income. “It’s not the ones with the highest debt period, but where median income is not keeping up with the average debt,” Rossman said. “New Mexico had the 12th-highest card debt, and the fifth-lowest income,” he added.
Massachusetts has the lowest debt burden from plastic. The average Bay State household, with income of $77,385, would require nine months to pay off the average credit card burden of $7,994, paying $708 in interest.
Nearly 20 percent of New Mexicans live in poverty, compared to 10.5 percent of Massachusetts residents, figures from the 2017 Census show. Nearly 11 percent of New Mexicans do not have health insurance, compared to 3.3 percent in Massachusetts.
After Massachusetts, the 10 states with the least burdensome card debt are: Wisconsin, Minnesota, Utah, Hawaii, California, New Hampshire, New Jersey, Maryland, Iowa and North Dakota.
How to climb out of debt
Rossman advises paying down credit card debt as quickly as possible.
“If you only make the minimum payment, nationally, it would keep people in debt for 23 years,” he said.
Those with card balances that can’t immediately be paid off should consider transferring the balance to an interest-free offer, some of which extend as long as 15 months.
According to Rossman, the threshold to qualify for such offers requires a credit score of about 670, which is below the national average of 705, so most consumers would qualify. Transfer fees should also be factored into the equation, he added.
Most importantly, he advises refraining from using the new card for additional purchases.
A personal loan is also a solid option, and less risky than a home-equity line of credit, as the former is unsecured and won’t put your house at risk, he said.