Debtor Nation: Which States Are Sinking Deeper

As the new year gets underway, debt levels continue to spiral across the nation. Just last week, the Federal Reserve Bank of New York reported Americans now owe $1.13 trillion on their credit cards, a historic record. TransUnion found the average American’s credit card balance is now $6,360, a 10% jump from a year ago and another all-time high.

“Consumers are just spending more,” Charlie Wise, Senior Vice President of Global Research and Consulting at TransUnion, told CNBC . “Even though the inflation rate is down, that doesn’t mean prices are coming down.”

Americans borrowed more throughout last year, with total consumer debt reaching $17.29 trillion nationwide in the third quarter of 2023.

To compare debt swings among states in mid-2023, Wallethub ran the numbers on data consumers’ finance data from TransUnion, as well as the Federal Reserve. The results give an inflation-adjusted picture (to November levels) of how people across the nation are faring.

Hawaiians topped the list. The Pacific archipelago state garnered the largest debt increase in Q3 2023 at $1,093 per household. Hawaii’s remote location, limited space, and high demand for goods and services all contribute to its high cost of living. Its recent battles against the recent Maui wildfires and lapse in tourism due to the pandemic have also hit financial security.

California came in next, with the average household increasing its debt in Q3 2023 by $988. A tight housing market here and high costs of living may explain higher spending. The Golden State has also suffered greatly under climate disasters, especially wildfires and droughts, which have forced some residents to take on debt to recover their homes.

Colorado came third, with their debt increasing by $978 in Q3 2023. The state has a sharp gap between high and low-income workers, and with inflation pressures mounting, it can be tough for some residents to cover costs.

The fourth, fifth, and sixth-highest debtor states were Utah, Washington, and Maryland, respectively, with Massachusetts, Virginia, Idaho, and Oregon rounding out the top ten.

The states whose debt increased the least over the time period were located in the south. The average household in Oklahoma, Mississippi, and West Virginia increased their debt by only $419, $383, and $375, respectively.

Debt Bomb

Radio host and famed financial influencer Dave Ramsey offers his signature “7 Baby Steps” method for achieving financial stability and generating wealth. The first step is to create a $1,000 starter emergency fund. Then, pay off all debts through the “snowball method,” where you pay off your smallest debts first and “snowball” your payments until you pay off your largest debts.

Once debt-free (exempting mortgages), save 3-6 months of living expenses for emergencies. After that, invest 15% of household income for retirement and children’s college fees. Finally, accelerate mortgage payments to own your home sooner, and then keep scaling up to greater prosperity and engage in philanthropy if possible.

“There are several good components to the Ramsey Baby Steps formula, and step two is to pay debts off via the snowball method,” says Jen Swindler, CFP, AFC, Senior Wealth Manager at Vincere Wealth Management.

“I recommend the avalanche method (highest interest rate first, rather than the smallest balance first) because the cost savings can be astronomical,” she adds, referring to an alternate repayment system. “However, there are cases where the snowball approach works better for certain clients.”

Living below one’s means is another tried and true method for avoiding debt and growing wealth.

Following simple, frugal living tips can make a real difference. Strict budgeting, regular decluttering, price matching, and proactive couponing are just some ways to generate a budget surplus.

For those seeking extra income, there are many creative side hustles to make extra cash, especially by working remotely online. While many of these roles, like web designer, YouTuber, or online tutor, are well-known and competitive, many more niche roles, like being a genealogist, telehealth nurse, or book reviewer, offer newcomers a chance to establish lucrative online income for themselves.

By being frugal with spending and getting pragmatic about extra income, more Americans from coast to coast and state to state can take a positive step towards escaping debt traps and generating greater financial security.