Special Report

Southern States Struggle the Most With Credit Card Debt

Samuel Stebbins

Published: January 23, 2019 7:06 pm

Last Updated: January 11, 2020 12:16 pm

Americans are increasingly using plastic over cash in the checkout aisle. According to the Federal Reserve, Americans have a record $1.04 trillion in credit card debt. The temptation to buy now and pay later with a credit card is powerful — and while many pay off their balances every month, those who do not often face serious financial consequences.

According to Ted Rossman, industry analyst at research group creditcards.com, about 40% of Americans have enough income to pay off their credit card balance and do so in full every month. For them, a high credit card balance is not a problem.

For the remaining 60%, however, maintaining a high credit card balance can mean hundreds of dollars in interest payments a year and a poor credit score.

Americans owe $8,195, on average, on both retail- and bank-issued credit cards. When it comes to debts this high, borrowers should pay as much as they can afford every month. According to Rossman, a good benchmark to shoot for is using 15% of gross income to pay down credit card debt. “If you’re only making minimum payments on these kinds of debts, you’re going to be in debt for a really long time,” Rossman said.

The average credit card debt varies by state, but it does not tell the whole story. The ability to pay off outstanding credit card balances also depends on income. In wealthier states, a credit card payment equal to 15% of median monthly income is going to be higher than in poorer states — and go farther in reducing debt.

Using that 15% benchmark against median household income in the state, as well as considering the average credit card debt in that state and assuming a middle-of-the-road 20.8% interest rate, the time it would take to pay down the average credit card debt varies considerably by state, as do the total interest payments. 24/7 Wall St. used data provided by creditcards.com to identify the states with the highest credit card burden — as measured by the amount of time it would take to pay off the average state debt.

States with the lowest credit card burdens do not necessarily have the least credit card debt but they are typically wealthier, with relatively high median household income. The states with the greatest credit card burdens are concentrated in the South and tend to be relatively poor. In some states, 15% of median income is enough to pay off debts of nearly $8,000 in just nine months. In others, a similar amount of debt can take nearly a year and a half to pay down.

In the table, states are ranked by the number of months it would take to pay down the average credit card debt by making payments equal to 15% of the state’s median monthly income. Ties are broken by estimated interest payments.

Methodology:

Average credit card debt per person by state data comes from creditcards.com and represents the sum of average bank card debt and average retail card debt. Credit card debt burden was determined by calculating how long it would take to pay down the average credit card debt in the state by paying 15% of the state’s median monthly income and assuming a 20.8% interest rate — the national median. Data on credit card debt burden was provided by creditcards.com. Median household income came from the U.S. Census Bureau.

Average credit score figures are as of 2017 and come from credit research group Experian. Credit scores are based on VantageScore, and range between 501 and 990. Scores below 630 are deemed poor, and scores above 720 are considered excellent.