Why High Debt Could Mean Financial Stability
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The Fiscal Times
July 30, 2014

The average American has $53,850 in total debt, 70 percent of which is mortgage debt – but debt is spread unequally across the U.S., according to the Urban Institute and the Consumer Credit Research Institute, which released a report on debt in America Tuesday.

States with pumped-up home values and high personal income are typically the ones where Americans carry the highest debt loads, while lower-income states tend to be low debt.

Related: 5 Reasons Not to Pay Off Your Mortgage Early

What matters even more, though, in assessing the financial health of Americans isn’t how much debt they have, but the type of debt they carry.

Here are the five states where Americans carry the highest average total debt:

1-      Hawaii: $83,810 in average total debt; 80.3 percent of this is mortgage debt

2-      Maryland: $76,583 average total debt; 76.8 percent mortgage debt

3-      Colorado: $74,340 average total debt; 76.3 percent mortgage debt

4-      Virginia: $74,279 average total debt; 76.6 percent mortgage debt

5-      Washington: $74,279 average total debt; 76.2 percent mortgage debt

Here are the five states where Americans carry the lowest average total debt:

1-      Mississippi, $31,065 in average total debt; 54.3 percent of this is mortgage debt

2-      West Virginia, $33,970 average total debt; 56.9 percent mortgage debt

3-      Arkansas, $37,162 average total debt; 61.1 percent mortgage debt

4-      Louisiana, $38,077 average total debt; 60.1 percent mortgage debt

5-      Oklahoma, $38,639 average total debt; 60.4 percent mortgage debt

Mortgage debt is typically heavy in states where the median price of a house is higher, and where average household income is higher. In those states, a jumbo mortgage won’t likely negatively affect people’s personal finances and ability to save, since owning a home helps build equity and usually allows people to benefit from a tax standpoint.  

For instance, in Hawaii, the state with the highest total debt, the median price of a house is $503,850, the highest in the country; average household income there is $83,006.

“Houses are more expensive, so the mortgage is higher but the value of the house is higher, too,” Josh Bivens, director of policy and research at the Economic Policy Institute, told The Fiscal Times. “The non-mortgage debt levels are perhaps more indicative of financial distress.”

Related: Five Easy Ways to Ruin a Perfect Credit Score

If non-mortgage debt is taken to help people improve their economic positions, such as student loans (in moderate amounts, of course), it’s an investment in the future. Those with student loans will likely get a job after college and pay that debt back, even if slowly. But other types of debt such as credit card debt may accumulate because consumption outpaces income – which could ultimately lead to financial hardship, debt in collections, and, in the worst case, bankruptcy.

The Urban Institute also noted in a separate report that 77 million Americans, or 35 percent of adults with a credit file, have a report of debt in collections in their credit file and owe on average $5,178. Debt in collections involves non-mortgage debt, including credit card balances, child support obligations or medical bills, which is so far past due that the account is closed and placed in collections.

Of all the states, Nevada has the highest percentage of Americans with debt in collections. The average total debt in Nevada is $51,226, including 71 percent of average mortgage debt.

The Urban Institute used 2013 data from TransUnion, the credit report company, to examine Americans’ total debt.

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Marine Cole has been covering finance and business for a decade and has written for publications that include The Wall Street Journal, Crain's New York Business, and AdvertisingAge.