A recent study shows that New Jersey residents have the second-highest average credit card balance in the country, with an average balance of $4,523 of credit card. In contrast, Iowa residents have the least amount of credit card debt with an average balance of $2,904. So, what do these figures really mean?
First of all, it needs to be understood that credit card debt is expensive. For example, if a consumer carries a $4,000 balance at 16 percent interest, it will take 20 years to pay it off if only the minimum monthly payment is made. High balances also affect a consumer’s credit score, which can lead to paying higher interest rates on loans and credit cards or, in some cases, simply being denied credit altogether.
One important factor is calculating credit scores is called a utilization ratio, which is the ratio of the outstanding balance to the credit limit. A higher ratio can mean a lower score, which can make it difficult to get a much needed debt consolidation loan. Situations with high debt and a low credit score may call for consulting a credit counseling service that can point a consumer toward a legitimate way to pay down the debt by negotiating with the creditors for a lower interest rate.
Debt can come on quickly for a variety of reasons. Consumers who find themselves in an overwhelming situation may wish to allow a bankruptcy attorney to review their financial situation. An attorney may be able to recommend steps to make the debt more manageable or, in some cases, show the consumer which sections of the Bankruptcy Code might offer a fresh start.
Source: ABC News, “The Most Debt-Free States in America“, Gerri Detweiler, September 16, 2013