Having started 2021 off with nearly $900 billion in credit card debt a new report on the States with the Highest & Lowest Credit Card Debts offers new insight.
WalletHub drew from TransUnion, the Federal Reserve, the U.S. Census Bureau, and WalletHub’s proprietary credit card payoff calculator to determine the cost and time required to repay the median credit card balance in each of the 50 states and the District of Columbia.
Below, you can find a handful of highlights from the report.
Credit Card Debt in California (1st Rank = Least Sustainable):
- Median Credit-Card Balance ($2,036)
- Median Income ($52,896)
- Cost of Interest Until Payoff ($158)
- Expected Payoff Timeframe (11 months and 9 days)
Experts Weigh In
What daily behaviors lead people to amass credit card debt?
“There are a number of behaviors that can lead to building credit card debt. For some people, it is all the unplanned purchases that one’s income cannot support. With others, it may be the tendency to splurge on bigger purchases too often. Not having a spending plan that helps one live within their means contributes to the problem in both cases. There are also instances where one suffers setbacks that contribute to large credit card debt. Losing a job, health conditions, divorce, and similar issues can cause credit problems for those who do not have adequate emergency funds and/or insurance,”
said Vickie Hampton, Ph.D., CFP a department chairperson, personal financial planning at Texas Tech University.
“Many people find themselves in debt because of poor budgetary discipline, but others use credit cards to cover unexpected expenses or life-altering experiences like illness or the death of a family member. Optimally a person would have a 3-month supply of savings to rely on for such emergencies, but Americans often do not save much…Credit cards are easy to get, and the payments are small and spread out over time, so it is easy to fall into the ‘credit trap’ if you are not careful,” said
Alan Hamlin is a professor at Southern Utah University.
What are the key situations when going into debt is worth it?
“Families and individuals typically have financial goals, things they want to achieve that cost money. Going into debt to purchase an automobile so that one can work is an example where the debt provides a positive impact on one’s ability to meet those financial goals. A college education is another example that can have a very positive impact on income and goal achievement. However, one always needs to be smart about going into debt. A really expensive new car is not needed to get to work and going into too much debt for a college degree that does not provide a marketable career is not a good use of debt. Other good uses of debt may be to purchase a home or to start a business,”
“There are many scenarios when going into debt is worth it. If the financed purchase is treated as an investment, it is worth it. Accumulating some debt to pay for tuition, a house, or starting a business is typically worth it. I would not recommend going into credit card debt for luxurious and lavish items if you do not have the wherewithal to repay the monthly balance,” according to Trish Petak, DBA, an associate professor at Kansas Wesleyan University.
As a result of the COVID-19 crisis, millions of Americans have experienced unexpected setbacks in their personal finances. What steps can a person take to be better prepared for unpredicted financial difficulties?
“The timing of financial difficulty may be unpredictable, but most people have financial difficulties at one time or another so building an emergency fund is a necessity, not a luxury. However, it is easier said than done and simple steps, based on how most people behave, can help. Automated paycheck deductions are one of the best ways to increase savings. Awareness of one’s financial situation is important. These days many apps help consumers get a good picture of their finances, help them plan, and also help them utilize saving opportunities. Financially responsible behavior does not mean giving up all discretionary spending, just prioritizing how you allocate your money to different expenses and saving accounts,” said Anand Goel, an associate professor at Stevens Institute of Technology.
“An emergency fund is necessary. After creating a monthly budget, one should be able to save at a minimum of 3 months’ worth of expenses. Also, never max out your credit card. There may come a time when an immediate purchase needs to be financed short-term and having an additional limit on your credit card would be beneficial,” Petak said.