As inflation continues to squeeze household budgets and makes paying for basic living expenses challenging, many are turning to credit cards to help cope with increasing expenses. American consumers now owe $986 billion on their credit cards, surpassing the pre-pandemic high of $927 billion. And while Americans have been relying on these lines of credit to charge both large and small purchases for decades, the record high in credit card balances highlights the effects of stubborn inflation and rising interest rates.
However, credit card use has its benefits—including travel rewards, financial flexibility, and helping individuals establish and build their credit scores. Having a healthy credit score is often necessary for big purchases like a down payment on a house or a car, and can also be helpful when applying to rent an apartment. Still, credit card usage can be a slippery slope for those unable to pay off their balances each month, especially as concerns of economic recession continue to grow.
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Inflation and signs of a looming recession are likely contributing to America’s record-high credit card debt, and the expectation amongst experts is that an economic downturn is increasingly imminent. Real GDP is an inflation-adjusted measure of the value of goods and services produced by an economy, and the Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia estimates the probability of a decline in real GDP occurring in Q3 2023 to be 45.2%.
Prior to the COVID-19 pandemic, the estimated probability of a real GDP decline was rising but still only pegged at 14.2% in Q4 2019. As the pandemic made its way stateside and forced many businesses to close their doors, fears of a recession grew and the probability of real GDP decline spiked to 43.8% by Q3 2020. Then, the federal government quickly stepped in with emergency financial support, causing the probability to sharply decline, only to rapidly rise again with the onset of inflation.
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The ramifications of rampant inflation can also be felt in the credit card space. In an attempt to curb inflation, the Federal Reserve continues to raise the federal funds target rate, which can drive up credit card interest rates and make it more expensive to carry a credit card balance.
For over 25 years, the average commercial bank credit card interest rate has roughly hovered between 12% and 16%. But in the past year, the average rate skyrocketed to over 20%, leaving credit card consumers in a uniquely difficult financial situation. The combination of inflation and rising interest rates makes it more expensive to pay down credit card balances in full each month, which can ultimately cause more people to live with unanticipated credit card debt.
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Collectively, American consumers carry nearly $1 trillion worth of balances on their charge cards, but certain areas of the country owe more than others. Southern and Rust Belt states have the highest share of residents with delinquent credit card debt, or consumers who have fallen behind on making their required monthly payments.
The 10 states with the highest share of residents with delinquent credit card debt are all located in the South, with Mississippi having the highest share at 6.2%. Arkansas and Georgia tie for second at 5.1%, and Alabama and Louisiana fall just behind, with 4.7% each. Rust Belt states like Ohio, Indiana, and Missouri also have a significant share of residents with past due credit card debt. In Ohio, 3.7% of all residents are living with delinquent credit card debt, while Indiana and Missouri are just behind at 3.6% each.
Paying down credit card balances can be very difficult, but certain metro areas are better suited for those looking to resolve their debt. Namely, high wages, low cost of living, and especially strong job opportunities make certain areas stand out. Out of the large U.S. metropolitan areas with populations of one million or more included in this study, Birmingham, Alabama is ranked as the top location to live for paying off credit card debt. A lower cost of living of 9.1% below the national average, full-time employment rate of 68.0%, and median earnings of $41,290 after adjusting for cost of living make Birmingham an ideal place to chip away at outstanding debt.
The metro areas of Kansas City and Nashville rank just behind Birmingham as realistic places to live for paying down credit card debt. Both locations have cost-of-living-adjusted earnings higher than the national median and unemployment rates under 3%. Salt Lake City is the only metro outside of the South and Midwest that ranks among the top 15 large metros for paying off credit card debt.
To determine the best locations to live for paying down credit card debt, researchers at Upgraded Points analyzed the latest data from the Urban Institute, U.S. Bureau of Economic Analysis, U.S. Census Bureau, U.S. Bureau of Economic Analysis, and U.S. Bureau of Labor Statistics. The researchers ranked states according to a composite score comprising cost of living compared to average (35%), cost-of-living-adjusted median earnings (20%), unemployment rate (20%), percentage of employees that are full time (15%), and share of residents with delinquent credit card debt (10%).
Here is a summary of the data for Texas:
- Composite score: 39.6
- Cost of living: 1.5% less than average
- Median earnings (cost-of-living-adjusted): $38,059
- Unemployment rate: 4.2%
- Percentage of employees that are full time: 67.5%
- Share of residents with delinquent credit card debt: 4.0%
For reference, here are the statistics for the entire United States:
- Composite score: N/A
- Cost of living: N/A
- Median earnings (cost-of-living-adjusted): $40,260
- Unemployment rate: 3.4%
- Percentage of employees that are full time: 64.6%
- Share of residents with delinquent credit card debt: 3.4%
For more information, a detailed methodology, and complete results, see Best Cities to Live for Paying Down Credit Card Debt on Upgraded Points.
