Americans collectively owe more than $15.3 trillion in personal debt, accumulated by financing homes and cars, taking out loans to attend college, or simply using credit cards. However, debt is not necessarily a sign that borrowers are living beyond their means or buying irresponsibly. It is often used as a tool to achieve financial goals that can have long-term benefits, such as buying a home to build capital over many years. Each state’s debt and income profiles vary widely when factors such as housing prices, cost of living and economic opportunity are taken into account.
Although not a factor in credit scores, lenders consider an applicant’s balance of debt and personal income when deciding whether to approve credit applications and when they set account terms, such as interest rates. The longer your income is used to pay off debt, the harder it can be to get approved.
Experian compared data from its consumer credit database Bureau of Economic Analysis (BEA) statistics to calculate the states with the highest and lowest personal debt ratios. Average personal income figures are from BEA, while personal debt balances are derived from Experian’s consumer credit database as of the third quarter (Q3) of 2021, and wages are used to contextualize the debt profile of each State.
However, many factors come into play when examining debt profiles, and not all of them can be included in this analysis. For example, the ratio of personal debt to income levels fails to capture the full financial picture of the “credit invisibles” –45 million Americans with poor or no credit—as well as systemic disparities in lending practices.
In addition to the pervasive influences on debt and income, the pandemic has highlighted the different financial realities of people across the country. While many have lost their jobs or suffered financial hardship, others have seen their situation improve. states, including Idaho and Utah, with booming economies and record real estate growth, are prime examples of the widening economic gap: while Americans in some states bought dream homes and drove a local economic boom, others elsewhere struggled to cope.