Credit cards are confusing for the majority of consumers and have even led some people to bankruptcy. There’s no denying that an increasing number of Americans are using credit cards to address their everyday needs. However, the surprising truth is that most credit card debt is decreasing, even though more people are using credit cards more than ever.
This trend could either be due to people paying off amounts of their card balances or that people are charging less often and only on important things. This decrease in outstanding credit card debt is considerable, with a $27 decrease each year, and means lower interest rates for old and new users. But what does it mean for a state to have the least or most credit card debt?
Ten States With the Most Credit Card Debt
In order, the states with the most credit card debt are:
- Alaska, with a grand average of $4,472 per consumer
- New Jersey ($4,431)
- Connecticut ($4,351)
- Maryland ($4, 214)
- Georgia ($4,192)
- Delaware ($4,165)
- District of Columbia ($4,115)
- Virginia ($4,068)
- Rhode Island ($4, 056) and
- Texas with $4, 047 in credit card debt per consumer.
But what do these numbers mean? Figuring out the debt average of a state is complex procedure and outstanding debt is only one aspect of that process. Even states that have a relatively high average credit balance can have low interest rates for their consumers if the difference between their balance and their state credit limit is far enough apart.
Another interesting thing to realize is that the majority of the states with the most credit card debt are located on the East Coast (with the exception of Alaska and Texas). Why is this so? Because East Coast locations not only have a higher population but also a higher cost of living. In these states, having a good credit score is instrumental in living comfortably.
However, this doesn’t necessarily mean that the states with the most credit card debt are poor. On the contrary, many of these high credit states are some of the wealthiest states in the nation when it comes to median income.
One of the most surprising statistics about the states with the most credit card debt is that they also have the best credit scores. While this can be attributed to a larger pool of credit card users, it’s also partly because of how credit cards function. Paying out a full balance in one transaction doesn’t affect a credit score significantly. However, paying on time (even if it’s the minimal amount) and keeping the debt-to-limit ratio low builds credit scores tremendously throughout the life of the loan. This means that more credit is given for low, continuous payments which is then spent, and more debt is accumulated.
Increasing State Averages and What They Mean
So, now that it’s understood how states with the most credit card debt can have reduced credit averages while having more credit card users, what about states that are increasing their averages of have high averages even with decreased debt?
Despite having an average consumer debt of $4,472, Alaska has actually reduced its state credit card debt by $200 since their total in 2012. This is largely due to new income medians being set in place, meaning that Alaskans don’t have to incur as much debt in order to get the things they need to live. In addition, as Alaska is becoming more populated there’s more difference between the state debt limit and the average consumer’s credit balance, as well as more credit card users.
On the other hand, Hawaii increased its debt significantly between the first quarter of 2013 and 2014. Their state credit debt jumped a shocking $49 per person, the highest spike of that time period. This is a result of a variety of variables, such as higher costs of living, unchanging income medians, and a decrease in tourism due to the subdued economic landscape of the United States.
Curiously, it can then be inferred that the state with the most amount of debt, Alaska, is actually in a better financial position than Hawaii, despite having more state debt because Alaska is steadily decreasing the amount of debt that they owe while Hawaii is rapidly increasing theirs and getting it closer to the state credit limit.
What Credit Card Debt Means To You
Having credit cards isn’t necessarily good or bad. Although having a large amount of debt is undesirable, it’s also an important tool for living comfortably in a credit-based state while still being within the confines of a constant income. The most important thing is to use common sense and moderation while keeping track of the purchases and total amount of debt that’s being incurred.