Credit-card customers in Mississippi are living with the highest \u201cdebt burden\u201d nationwide, according to a new report.<\/p>\n
That\u2019s despite the fact that Mississippi has a relatively low \u201cdebt load\u201d when compared to other states, said Ted Rossman, a senior industry analyst at CreditCards.com, which published the report Tuesday. The average bank card balance there is just below $4,972 \u2014 several hundred dollars below the national average of $5,719, and far less than the $6,038 average found in California.\u00a0<\/p>\n
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\u201cThe problem, though, is being last in income,\u201d Rossman said. \u201cThe dollar just doesn\u2019t stretch as far.\u201d <\/p>\n
Debt burden refers to average balance relative to average household income.<\/p>\n
More than 19% of Mississippi\u2019s 2.9 million residents live in poverty, and it has long been one of the poorest states in the country, with an average household income of $68,048 \u2014 the lowest of any U.S. state, according to CreditCards.com. Other states with similarly high debt burdens, including Oklahoma, Louisiana and New Mexico, also have debt loads below the national average coupled with lower average household incomes.\u00a0<\/p>\n
Likewise, people in each of those states are more likely to have all sorts of debt in collections, according to the Urban Institute. While 26% of Americans have some sort of debt in collections, the same is true for 35% of Mississippians, 35% of Oklahomans, 37% of Louisianians and 32% of New Mexicans, data from the Washington, D.C.-based think tank show, with past-due bills disproportionately affecting people of color, who are also more likely to have lower incomes.\u00a0<\/p>\n
A \u2018hot spot\u2019 for consumer debt<\/h2>\n
For example, in Mississippi\u2019s Quitman County, where the Rev. Martin Luther King Jr.\u2019s Poor People\u2019s Campaign began in 1968 shortly after his assassination, 51% of the population has some sort of debt in collections, and there\u2019s a credit-card-debt delinquency rate of 12%, four times higher than the national rate, according to data from the Urban Institute. The county, which has fewer than 6,000 residents, is largely Black, and its poverty rate is nearly 34%, according to census data.\u00a0\u00a0<\/p>\n
People living in Mississippi, which has not expanded Medicaid, the government\u2019s health-insurance program for low-income people, may also have access to fewer safety-net benefits.<\/p>\n
\u201cFolks in the South are living within a particular institutional context: You can either turn to a public or a private safety net to meet your needs,\u201d said Kassandra Martinchek, a research associate at the Urban Institute. \u201cIf there are fewer social, societal community supports available, you might be relying more on your private safety net. Elements of that private safety net are the ability for you to run up a balance on your credit card, turning to your savings, borrowing from friends and families \u2014 all of those financial coping strategies.\u201d<\/p>\n
The South is a \u201chot spot\u201d for all types of consumer debt, Martinchek said \u2014\u00a0medical debt, student-loan debt, auto debt and credit-card debt. <\/p>\n
Miranda Santillo, a policy program associate at the Urban Institute, added that the higher shares of debts in collections and worse credit health among communities of color are representative of \u201clong histories of structural disinvestment in these particular communities of color.\u201d That can make it even more challenging to access affordable credit products and climb out of debt.\u00a0<\/p>\n
\u201cThis isn\u2019t just a small difference that we\u2019re looking at,\u201d Martinchek said, noting that the Urban Institute published a report last year examining racial differences in credit-card delinquency rates during the pandemic.\u00a0<\/p>\n
\u201cWhen we look at credit-card delinquency rates, the share of consumers who have a credit card who are behind on those payments, we see that consumers who are living in majority-Black communities have a rate that\u2019s over twice the rate compared with all other consumers,\u201d Martinchek said.\u00a0<\/p>\n
How to tackle debt loads<\/h2>\n
To calculate credit-card debt burden by state, the CreditCards.com report relied on each state\u2019s average credit-card balance data, as well its average annual household income. Then, making the assumption that 5% of any household\u2019s average gross monthly income in a certain state would go toward paying off the average debt load, CreditCards.com determined how long it would take to be debt-free in each state.\u00a0<\/p>\n
By that logic, it would take 22 months for Mississippians with an average monthly household income of $5,671 to pay off the state\u2019s average bank card balance of $4,972, during which time they\u2019d accrue almost $1,000 in interest if they had the current average rate for newly opened cards of 20.69%. In a higher-income state like Massachusetts, meanwhile, it would take a household 13 months to pay off a debt of $5,633 if it devoted 5% of its average monthly income of $10,399 to payments.\u00a0<\/p>\n
One upside worth noting from CreditCards.com\u2019s data, according to Rossman, is the evident value of making higher-than-minimum monthly payments. Only making minimum payments \u2014 typically 1% of the balance, plus interest, Rossman said \u2014\u00a0on the average credit-card debt level could result in a pay-off time of more than 17 years.\u00a0<\/p>\n
With minimum payments, \u201cthe total interest bill on an average balance of $5,733 would be $8,418, just in interest,\u201d Rossman said. \u201cThat\u2019s what we\u2019re trying to avoid here.\u201d<\/p>\n
\u201cIf you stick to this 5% plan, you can be debt-free in two years in every state,\u201d he added.<\/p>\n
Overall, though, several aspects of the nation\u2019s credit-card debt burden are worrisome, he said. For one, it\u2019s more expensive to carry credit-card debt due to record-smashing interest rates, and people might have higher-than-usual expenses due to the increased cost of consumer goods.\u00a0<\/p>\n
\u201cAll these things are kind of colliding \u2014 high inflation, high interest rates,\u201d Rossman said. \u201cCredit-card debt is one of those things that\u2019s easy to get into and hard to get out of. I do worry what this says moving forward, because there\u2019s a cumulative effect to all of this.\u201d\u00a0<\/p>\n
Though the best strategy is to pay off a credit-card balance in full each month, Rossman said, those looking to avoid steep interest charges on their debt could get a balance-transfer card with an introductory rate of 0%. However, since consumers often need a good credit score to qualify for those deals, Rossman also recommended that low-income people turn to nonprofit credit counselors for help.\u00a0<\/p>\n
As of August 2021, 20.3% of Americans had a subprime credit score, according to the Urban Institute, potentially cutting them off from better balance-transfer cards. Nearly 30% in Mississippi had a subprime credit score overall, while 41.2% of communities of color in the state had a subprime score.\u00a0<\/p>\n
\u201cThere are some warning signs just in terms of record-high interest rates, record-high debt loads \u2014 the New York Fed says that credit-card debt is at a record high,\u00a0and then our research also shows more people carrying it,\u201d Rossman said. He noted that 46% of credit-card holders are currently carrying credit-card debt from month to month, up from 39% a year ago.\u00a0<\/p>\n
From the archives (February 2023):<\/strong> Americans\u2019 credit-card balances just zoomed past prepandemic levels<\/p>\n<\/p><\/div>\nRead the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Credit-card customers in Mississippi are living with the highest \u201cdebt burden\u201d nationwide, according to a new report. That\u2019s despite the fact that Mississippi has a relatively low \u201cdebt load\u201d when compared to other states, said Ted Rossman, a senior industry analyst at CreditCards.com, which published the report Tuesday. The average bank card balance there is […]<\/p>\n","protected":false},"author":1,"featured_media":25598,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-25597","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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