2016's Cities with the Highest & Lowest Credit Card Debts
As we enter 2016, many consumers will unfortunately be walking into a financial hailstorm. The holidays are commonly known to give Americans a spending hangover, after financing gifts and festivities with costly plastic. According to CardHub's estimates, Americans will have exceeded $900 billion in credit-card debt as of year-end 2015, the highest amount recorded since the economic downturn.
Just as worrying as our debt levels, however, is consumers' lack of touch with reality — or denial — about what they really owe. According to a report from the Federal Reserve Bank of New York, the total amount of credit-card debt that U.S. consumers claim to have is 37 percent lower than the figure lenders have reported.
Without an accurate knowledge of our balances, it's impossible to create a realistic credit-card payoff plan. In addition, location plays a central role in how well consumers manage their credit-card debts — and how high they rise — depending on factors such as income and financial literacy. Drawing on credit data provided by our partner TransUnion, our analysts calculated the number of months required to pay off the average credit-card balances in 2,547 U.S. cities as well as the associated costs of doing so. You can find the results, additional expert commentary and a detailed methodology below.
|Overall Rank||City||Avg. Credit-Card Debt||Cost to Pay off||Payoff Months|
Troubling projections for credit-card debt in 2015 are dangerously close to unsustainable levels not seen since the Great Recession. We asked a panel of credit experts to shed light on the irresponsible credit behavior that leads to such negative results and the effects of such mistakes on the overall economy. Click on the experts’ profiles to read their bios and thoughts on the following key questions:
What daily behaviors lead people to amass credit-card debt?
What is the biggest mistake people make when managing credit-card debt?
How does the growth of credit-card debt affect the economy?
What role, if any, should government play in incentivizing and encouraging people to maintain low debt-to-income ratios (e.g., through tax incentives)?
In order to identify the cities with the most and least sustainable credit-card debts, we first looked at the average credit-card balances of residents in each of 2,547 U.S. cities as of September 2015, based on TransUnion data. Our analysis includes credit cards that carried a balance and excludes store cards. With regard to our sample, please note that "city" refers to city proper and excludes surrounding metro areas.
Using CardHub's credit card payoff calculator and resident's average credit-card balance and income, we then determined the required number of months to pay off the balance and the resulting finance charges. To do so, we made the following two assumptions:
First, we assumed that individuals earning the national median income ($30,815) would be able to pay on a monthly basis 3% of their initial credit card balance. Based on that assumption, we calculated what percentage the minimum credit-card payment (i.e. 3 percent of the balance) represents of the median income. We then used that percentage and the median income in each city to calculate the average monthly payment in a particular city.
The median income for each city is based on the 2014 earnings of individuals aged 16 and older who had full- or part-time employment, according to the U.S. Census Bureau's American Community Survey. The figure excludes income from sources other than work.
Second, we assumed a 14 percent average interest rate based on the APR paid by existing cardholders, according to the average interest rate assessed on accounts with finance charges, as provided by the Federal Reserve's Consumer Credit report. We used that percentage to compute the cost of paying off a city's credit-card balance.
Finally, we ranked the cities based on the calculator's outputs for each city. A rank of "1" corresponds with the city with the most sustainable credit-card debt — that is, the city with the shortest payoff timeline and smallest payoff cost.
Sources: Data used to create these rankings were obtained from the U.S. Census Bureau, the Federal Reserve and TransUnion.
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