Special Report

States Where People Are Struggling With the Most Debt

Many of us have experienced the desperation that comes from crushing debt at one point in our lives. Whether it’s student loans, car payments, credit card balances, or all of the above, debt is one of the main reasons why many Americans spend years delaying important life decisions — like acquiring home equity, establishing a retirement savings account, or even going to the doctor. 

The “Report on the Economic Well-Being of U.S. Households in 2019” issued by the Board of Governors of the Federal Reserve System in May of last year, revealed that 28% of households couldn’t pay a month of bills in full, or wouldn’t be able to pay the bills in full if they confronted an unexpected $400 expense. Their fallback? Credit cards, payday or auto-title lenders, or support from family and friends. These are the cities hit hardest by extreme poverty in every state.

The report also noted that about a fourth of adults delayed visits to the doctor or dentist because they were unable to afford the cost. And this, remember, was before the economic devastation caused by the pandemic had taken full effect.

Like many aspects of American life, the detrimental impact of debt has a racial bias. Poverty disproportionately affects communities of color, and debt piles up disproportionately in non-white households. Communities of color have a higher amount of debt in default than white-majority communities (39% versus 24%) as well as more unsecured-loan defaults involving medical, student loan, auto/retail, and credit cards balances. (The Urban Institute defines people of color as “those who are African American, Hispanic, Asian or Pacific Islander, American Indian or Alaska Native, another race other than white, or multiracial.”)

Click here to see the states where people are struggling with the most debt.

To identify the states where people are struggling the most in debt, 24/7 Wall St. reviewed every state’s median debt in collections among those residents with any debt in collections from non-profit think tank Urban Institute‘s Debt in America 2021 report. The Urban Institute used credit bureau data from 2020. 

The median debt in collections and the share of adults with debt in collections for communities of color and for white communities also came from the Urban Institute. The majority-white communities are based on credit records for people who live in zip codes where most residents are white (at least 60% of the population is white), and communities of color values are based on credit records for people who live in zip codes where most residents are people of color (at least 60 percent of the population is African American, Hispanic, Asian or Pacific Islander, American Indian or Alaska Native, another race other than white, or multiracial). 

Like wealth, debt is distributed unevenly across the U.S. Americans in some parts of the country struggle more than in others. Based on statistics compiled by the Urban Institute, 24/7 Wall St. has ranked the states according to the median amount of debt in collections in each one. Some of the positions might surprise you. These are 16 states where poverty is worse than you might think.