Creditcard Debt Burdens Are Worst In This State. Heres Why.

Credit card customers in Mississippi are living with the highest "debt burden" in the country, according to a new report.

Although Mississippi has a relatively low "debt burden" compared to other states, said Ted Rossman, a senior industry analyst at CreditCards.com, which released the report Tuesday. The average credit card balance is just under $4,972, hundreds of dollars below the national average of $5,719 and well below California's average of $6,038.

"But the problem is fundamentally," Rossman said. "The dollar won't expand as much."

Debt burden corresponds to the average balance of the average household income.

More than 19 percent of Mississippi's 2.9 million residents live in poverty, and according to CreditCards.com, Mississippi has long been among the poorest states in the nation with a median household income of $68,048, the lowest of any U.S. state. States with high debt burdens have median household incomes that are lower than the national average, including Oklahoma, Louisiana, and New Mexico.

According to the Urban Institute, people in each of these states are more likely to have any type of debt. While 26 percent of Americans have some form of debt, including 35 percent in Mississippi, 35 percent in Oklahoma, 37 percent in Louisiana and 32 percent in New Mexico, data from Washington-based think tank Show DC show that blacks are disproportionately affected. accounts receivable being as low as they can be profitable.

The "hot spot" of consumer debt.

For example, in Quitman County, Mississippi, in 1968 Martin Luther King Jr. shortly after his death, where he worked for the poor, 51 percent of the population had some form of debt, including a credit card. According to Istituto Urbano, the debt delinquency rate is 12%, four times higher than the national level. The county, with fewer than 6,000 residents, is predominantly black and has a poverty rate of nearly 34 percent, according to census data.

Those living in Mississippi, where Medicaid, the state's health insurance program for low-income people, has not expanded, may also receive some safety net benefits.

"People in the South live in a particular institutional environment: they can use a public or private safety net to meet their needs," said Urban Institute researcher Cassandra Martinchek. "The less social support you have in your community, the more you rely on your personal safety net. Elements of this personal safety net include building a balance on your credit card, using your savings, borrowing from friends and family, all of these money management strategies .

The South is a "spot" for all types of consumer debt, Martinchek said, including medical debt, student loan debt, auto debt and credit card debt.

Miranda Santillo, policy program manager at the Urban Institute, added that higher foreclosure rates and lower credit scores in communities of color reflect "long histories of structural change in these particular communities." This makes it difficult to find and borrow affordable credit products.

"It's not a small difference that we're seeing," said Martinchek, whose Urban Institute released a report last year on racial disparities in credit card crime rates during the boom.

"If we look at credit card default rates, which is the percentage of consumers with credit cards who default on their payments, we see that consumers in predominantly black communities are more than twice as likely as other consumers," Martinch said.

How to deal with a lot of debt

To calculate credit card debt burden by state, the CreditCards.com report uses data on average credit card balances and median annual household income for each state. Assuming that 5% of a state's average monthly gross income goes toward paying the average debt load, CreditCards.com estimated how long it would take each state to become debt-free.

Using that logic, Mississippi residents with a median monthly household income of $5,671 would take 22 months to pay off the state's median credit card bill of $4,972, and in that time, they would earn nearly $1,000 based on current interest. By contrast, in a high-income state like Massachusetts, it would take a family 13 months to pay off $5,633 in debt if they invested 5 percent of their median monthly income of $10,399 in payments.

A key advantage of the CreditCards.com data, Rossman says, is the clear value of monthly payments above the minimum. Small payments, typically 1 percent of the balance plus interest, Rossman said, can pay off the average credit card debt over 17 years.

With the minimum payments, "the average total interest payment of $5,733 would be $8,418 in interest alone," Rossman said. "We want to avoid that here."

"If you stick to that 5 percent plan, you can be debt-free in any state in two years," he said.

Overall, the country's credit card debt burden is mixed, he said. On the one hand, carrying credit card debt with record interest rates is expensive, and people may be spending more than normal due to rising consumer prices.

"All these things are contradictory: high inflation, high interest rates," Rossman said. “Credit card debt is one of the easiest things to get into and the hardest to get out of. What you say worries me because it all has a cumulative effect.

While the best strategy is to pay off all of your credit card balances each month, Rossman said, people who want to avoid high interest rates on debt can get a balance transfer card with a 0% introductory interest rate. But since consumers often need good credit to qualify for such offers, Rossman advised low-income people to seek help from nonprofit credit counselors.

According to the City Institute, as of August 2021, 20.3% of Americans had excellent credit, which could prevent them from getting better credit cards. In Mississippi, nearly 30% of the population had subprime credit, and 41.2% of the state's black communities had subprime credit.

"There are some warning signs of record interest rates and debt: The New York Fed says credit card debt is at record levels, and our research shows that more and more people are struggling," Rossmann said. 46 percent of credit card holders now have monthly debt, up from 39 percent a year ago.

From the Archives (February 2023): Americans' credit card bills are surpassing pre-pandemic levels.

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