I’m currently muddling through the most expensive phase of my life.
I’m mid-career, with a sizeable mortgage, payments on one of two cars, and the energy, food, and clothing bills commensurate with having one teenage and one preteen boy living under my roof.
Oh, and both my kids play competitive sports, with fees and travel expenses that dwarf any childcare costs I ever incurred for them when they were young.
Had I not started a business to cope with this non-stop tidal wave of costs, I’d be drowning.
And even with that extra income, some months I’m living cheque-to-cheque.
Yet I can say I have only carried a balance on my credit card one time in my whole life: last year, when Christmas, travel, and fees all teamed up against me at the same time.
While I still feel guilty about that even a year later, things could certainly be worse.
A quick glance at the top 5 U.S. states with the highest credit card debt shows you and I are probably doing just fine.
Ranking U.S. States with the Worst Credit Card Debt
Not all debt is bad debt, and just because you have some, it doesn’t mean you can’t handle it.
Things are a little more complex than a simple total might suggest.
Sure I took on significant debt to buy my house, for example, but it has more than doubled in value since I bought it and has thus rendered my mortgage relatively tiny by comparison.
While some people carry higher debts — even credit card debt in some cases — it’s entirely possible they have more than adequate income to deal with it.
So when Bankrate recently ranked all US states by highest debt level using data from Transunion, it also ranked them by heaviest debt burden.
What exactly does that mean, and which states came out on top?
Let’s discuss.
What is Debt Burden?
Here’s how Bankrate described its approach to debt burden:
“The goal of this study was to identify the states in which credit card debt is easier to pay off, as well as those where consumers are more hard-pressed to pay off their debts.
“As a result, this is not a basic ranking of which states have the highest and lowest credit card debt, although that is one of the primary inputs.
“We have also taken into consideration Census data on average household incomes to gauge overall debt burdens.
“For instance, it is generally easier to pay off $5,000 in credit card debt if you make $100,000 annually than it is to pay off that same amount of debt if you only make $50,000 per year.”
Using all that data, it came up with a simple metric: how many months would it take a family to pay off its credit card if it spent 5% of its income on debt repayment?
U.S. States with the Highest Credit Card Balances OVERALL
Let’s look first at the states with the highest average credit card balances.
Here’s the top 5, along with the total:
- Arkansas ($7,316)
- Maryland ($6,787)
- Nevada ($6,710)
- New Jersey ($6,695)
- Hawaii ($6,695)
According to Bankrate, however, NONE of these states have the highest debt burden.
That’s because incomes are higher there, making the debt more manageable.
U.S. States with the Highest Debt Burden
Now compare that to the states with the highest debt burden (number of months to pay off debt in brackets):
- Mississippi (22)
- Louisiana (22)
- West Virginia (21)
- Oklahoma (21)
- Arkansas (20)
So the highest debt burdens fall on the most poverty-stricken states. I’ve touched on this recently, including in this piece on the states with the lowest average housing prices and the highest depression levels.
U.S. States with the Lowest Debt Burden
In case you’re interested, here’s how they compare to the top 5 states with the lowest debt burden.
- Massachusetts (13)
- Minnesota (14)
- New Hampshire (14)
- California (14)
- New Jersey (14)
So New Jerseyans (is that a word?) have some of the highest credit card balances but the lowest debt burdens in the country.
The Best Credit Card Balance to Have
Sometimes life’s challenges throw you for a financial loop as they did me a year ago and you have to adjust on the fly.
But at the end of the day, the best approach to bad debt is to never get under its thumb in the first place.
I pride myself on living below my means, and I’m confident I’ll be set up to thrive as soon as my kids are done with competitive sports.
Until then, I’m going to do my best to stay at least 1 step ahead of those two ravenous monsters known as Visa and Mastercard.
What’s your approach to using credit cards?
Have you ever been forced to lean on credit card debt and how did you get out of it?
Let me know in the comments!
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