Published in: Research | July 23, 2019

Americans in These 15 States Owe More Money Than They Earn Annually

Portrait of Benjamin Franklin close-up from a one hundred dollar bill.

Image source: Getty Images.

Are you carrying too much debt? If so, you’re not alone. In fact, depending on the state in which you live, you may have a great deal of company. Fortunately, no matter the size of your debt load, you can take steps to make it more manageable.

Why personal debt is a big problem

The average American now has about $38,000 in personal debt, excluding home mortgages, according to Northwestern Mutual's 2018 Planning & Progress Study. Of course, not all debt is “bad” debt -- your car loan may help you get to work, and your student loan may have helped you get that job in the first place.

Nonetheless, excessive debt is a real problem for many people. Here are just a few issues that can result from high debt obligations:

  • Reduced retirement savings: You could spend two or three decades of your life in retirement, so you’ll want to put away as much money as you can while you’re working. However, your ability to fully contribute to your IRA, 401(k), and other retirement accounts could be hampered if you’re constantly making large debt payments. Think of it this way: Every dollar you spend on debt today is a dollar that you could have invested for tomorrow. And that invested dollar could potentially have grown to many times its worth along the way.
  • Loss of opportunities: The larger your debt payments, the lower your cash flow. A reduced cash flow has many implications, but one of the most important is the loss of opportunities. You might not be able to diversify your investment portfolio or make a physical purchase, such as a home improvement project, that could ultimately improve your net worth.
  • Lower credit rating: The more debts you have, the more likely your credit score will suffer, possibly depriving you of favorable terms on future loans.
  • Potential for greater debt: If you really get in a debt bind, you may find yourself borrowing from one source just to pay another. Clearly, this is a vicious cycle that can only aggravate your debt situation.

Where you live can affect your debt load

Although many people blame themselves for their debt problems, there are certainly valid reasons they find themselves in debt. What is interesting is that in some states, the average debt is significantly higher than the average annual income -- most dramatically in Hawaii, where the per capita debt is $18,025 higher than the per capita income. That’s not so surprising when you consider that Hawaii comes out on top in cost of living comparisons and has done so for several years.

Here are 15 states which have a higher per capita debt balance than per capita income.

State Per capita income Per capita debt balance Difference between per capita income and debt
Hawaii $54,565 $72,590 ($18,025)
Colorado $56,846 $71,340 ($14,494)
Utah $45,340 $59,320 ($13,980)
Arizona $43,650 $53,060 ($9,410)
California $62,586 $71,860 ($9,274)
Virginia $56,952 $65,480 ($8,528)
Maryland $62,914 $71,120 ($8,206)
Oregon $49,908 $55,090 ($5,182)
Idaho $43,155 $48,260 ($5,105)
District of Columbia $81,882 $86,730 ($4,848)
Washington $60,781 $65,390 ($4,609)
Nevada $48,225 $52,770 ($4,545)
Delaware $51,449 $54,200 ($2,751)
Georgia $45,745 $48,370 ($2,625)
South Carolina $42,736 $43,880 ($1,144)

Data sources: New York Fed Consumer Credit Panel / Equifax, March 2019; U.S. Department of Commerce, Bureau of Economic Analysis, 2019.

States with the highest cost of living

Hawaii is not the only state that has both a high cost of living and a high level of debt. A quick look at recent research from the Council for Community and Economic Research into the most expensive states, which factors in everything from food to utilities, transport and housing, shows considerable crossover with the states that have the highest gap between income and debt.

Most expensive states to live in
  1. Hawaii
  2. District of Columbia
  3. California
  4. New York
  5. Oregon
  6. Massachusetts
  7. Alaska
  8. Maryland
  9. Connecticut
  10. New Jersey
  11. Rhode Island
  12. Maine
  13. Vermont
  14. Washington
  15. New Hampshire

Data source: Council for Community and Economic Research.

As you can see, six states (Hawaii, District of Columbia, California, Oregon, Washington and Maryland) make both lists. Of course, if you live in one of these states, you will already know that the cost of living is high. And you may already be pushing or exceeding the rule of thumb that says you should spend no more than 30%-35% of your gross monthly income on either rent or mortgage (including property taxes and home insurance).

Short of uprooting your life and moving to a lower-cost state, or possibly downsizing your living arrangements in a way you might find uncomfortable, what can you do to bring down your debt load? It may feel as if you don’t have many options, but you are far from helpless.

Tips for lightening your debt burden

There’s no “Get Out of Debt Free” card in our world. However, you may want to consider these suggestions:

  • Be realistic -- and take practical steps: You didn’t get into debt overnight, and you won’t get out of it quickly either. Be realistic about your debt-reduction goals, and take whatever practical steps you can. For example, prioritize your debts and try to pay down things like high-rate credit cards first.
  • Consider an emergency fund: If you are not already heavily in debt, try to build up an emergency fund of money kept in a liquid, low-risk account. You can use this money to pay off unexpected costs -- such as a major car repair -- that otherwise might force you to incur debt.
  • Try to reduce your monthly interest payments: See whether a balance transfer, which would allow you to move your credit card balance into one with a low or 0% interest rate, is an option for you. This would allow you to pay off more of the balance while the interest is low. You may also be able to use a personal loan to consolidate your debt.
  • Find resources on dealing with debt: You can go online and find many resources to help you cope with debt. One particularly useful site is the Federal Trade Commission’s “Dealing With Debt” page, which offers suggestions on getting out of debt, paying down credit cards, avoiding “credit repair” rip-offs and other topics.
  • Contact a credit counselor: A reputable credit counselor can be invaluable in helping you untangle your debt situation. You’ll want to find an agency that provides free, face-to-face counseling sessions to discuss your spending habits, create a budget, and assist you in managing your personal finances. Be careful, though -- many scam artists populate the field of credit counseling, claiming that they’re providing you with financial “education,” but in reality, trying to sell you costly services you probably don’t need. You can help avoid these scammers by asking if a counseling agency is a member of a legitimate industry association, such as the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

These and other steps can take you a long way toward gaining control of your debts, and even improving your state of mind -- no matter which actual state you live in.

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