Credit-card customers in Mississippi are living with the highest “debt burden” nationwide, according to a new report.
That’s despite the fact that Mississippi has a relatively low “debt load” 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 — several hundred dollars below the national average of $5,719, and far less than the $6,038 average found in California.
“The problem, though, is being last in income,” Rossman said. “The dollar just doesn’t stretch as far.”
Debt burden refers to average balance relative to average household income.
More than 19% of Mississippi’s 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 — 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.
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.
A ‘hot spot’ for consumer debt
For example, in Mississippi’s Quitman County, where the Rev. Martin Luther King Jr.’s Poor People’s Campaign began in 1968 shortly after his assassination, 51% of the population has some sort of debt in collections, and there’s 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.
People living in Mississippi, which has not expanded Medicaid, the government’s health-insurance program for low-income people, may also have access to fewer safety-net benefits.
“Folks 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,” said Kassandra Martinchek, a research associate at the Urban Institute. “If 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 — all of those financial coping strategies.”
The South is a “hot spot” for all types of consumer debt, Martinchek said — medical debt, student-loan debt, auto debt and credit-card debt.
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 “long histories of structural disinvestment in these particular communities of color.” That can make it even more challenging to access affordable credit products and climb out of debt.
“This isn’t just a small difference that we’re looking at,” Martinchek said, noting that the Urban Institute published a report last year examining racial differences in credit-card delinquency rates during the pandemic.
“When 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’s over twice the rate compared with all other consumers,” Martinchek said.
How to tackle debt loads
To calculate credit-card debt burden by state, the CreditCards.com report relied on each state’s average credit-card balance data, as well its average annual household income. Then, making the assumption that 5% of any household’s 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.
By that logic, it would take 22 months for Mississippians with an average monthly household income of $5,671 to pay off the state’s average bank card balance of $4,972, during which time they’d 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.
One upside worth noting from CreditCards.com’s data, according to Rossman, is the evident value of making higher-than-minimum monthly payments. Only making minimum payments — typically 1% of the balance, plus interest, Rossman said — on the average credit-card debt level could result in a pay-off time of more than 17 years.
With minimum payments, “the total interest bill on an average balance of $5,733 would be $8,418, just in interest,” Rossman said. “That’s what we’re trying to avoid here.”
“If you stick to this 5% plan, you can be debt-free in two years in every state,” he added.
Overall, though, several aspects of the nation’s credit-card debt burden are worrisome, he said. For one, it’s 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.
“All these things are kind of colliding — high inflation, high interest rates,” Rossman said. “Credit-card debt is one of those things that’s easy to get into and hard to get out of. I do worry what this says moving forward, because there’s a cumulative effect to all of this.”
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.
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.
“There are some warning signs just in terms of record-high interest rates, record-high debt loads — the New York Fed says that credit-card debt is at a record high, and then our research also shows more people carrying it,” 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.
From the archives (February 2023): Americans’ credit-card balances just zoomed past prepandemic levels
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