Edited by: Keri Stooksbury
Best Cities To Live In for Paying Down Credit Card Debt [2023 Data Study]
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As inflation continues to squeeze household budgets¹ 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.² 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.
The Impact That the Pandemic and Inflation Has Had on U.S. GDP Expectations
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.
It’s Becoming Increasingly Expensive To Carry a Credit Card Balance
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.
The Viability of Paying Down Credit Card Debt Varies by Location
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 1 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%, 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 (across Missouri and Kansas) and Nashville, Tennessee, 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.
For a breakdown of nearly 350 U.S. metros and all 50 U.S. states, here is the report’s complete data table:
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’s Debt in America 2022 report, the U.S. Bureau of Economic Analysis’ Employment by County, Metro, and Other Areas dataset, the U.S. Census Bureau’s 2021 American Community Survey, the U.S. Bureau of Economic Analysis’ Regional Price Parities datasets, and the U.S. Bureau of Labor Statistics’ Local Area Unemployment Statistics. The researchers ranked metros according to a composite score comprising the following factors and weights:
- 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%)
- Share of residents with delinquent credit card debt (10%)
In the event of a tie, the location with the lower cost of living compared to the national average was ranked higher. To improve relevance, only metropolitan areas with at least 100,000 residents were included. Additionally, metros were grouped into cohorts based on population size: small (100,000 to 349,999), midsize (350,000 to 999,999), and large (1,000,000 or more).
American consumers now owe nearly $1 trillion in credit card balances and have been relying on them to cope with the effects of stubborn inflation and rising interest rates. While credit card use has many benefits, it can also be a slippery slope, especially as concerns of economic recession continue to grow.
Economic forecasters estimate the probability of real GDP decline in Q3 2023 at 45.2%, squeezing household budgets even more than usual. When inflation outpaces incomes, it’s normal for consumers to feel pinched by their budget, and many individuals may need to rely on their credit cards to make ends meet.
Credit card interest rates are rising, in large part due to actions taken by the Federal Reserve to help curb inflation. In February 2023, the average commercial bank credit card interest rate was over 20%, drastically diverging from the roughly 12% to 16% of previous decades. Although it’s best practice to pay credit card balances in full each month, the combination of inflation and rising interest rates makes it more expensive and can even delay well-intentioned consumers from fully eliminating their balances.
While American consumers owe nearly $1 trillion in credit card balances, certain areas owe more than others. Areas in the South and the Rust Belt have the highest share of residents with delinquent credit card debt. Fortunately, areas in the Midwest are particularly well-suited for paying off credit card debt. Metropolitan areas like Birmingham, Kansas City, and Nashville rank among the top large metros for paying down credit card balances due to their low costs of living and low unemployment rates.
1. Urban Institute. (2023, March 21). As Inflation Squeezed Family Budgets, Food Insecurity Increased between 2021 and 2022, Findings from the Well-Being and Basic Needs Survey. https://www.urban.org/research/publication/inflation-squeezed-family-budgets-food-insecurity-increased-between-2021-and-2022. Retrieved June 14, 2023.
2. Federal Reserve Bank of New York (2023, May). Quarterly Report on Household Debt and Credit. https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1. Retrieved June 14, 2023.
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