Connecticut ranks high among states for credit card debt as the Federal Reserve Bank has been increasing interest rates to combat inflation, which will drive up the minimum payments on credit cards and could leave residents facing more difficulty.
Several different organizations found the state’s median and average credit card debt among some of the highest: Wallethub’s recent report found Connecticut’s median credit card debt was fourth highest in the country; Credit Karma ranked Connecticut 45th in the country with an average credit card balance of $6,751 and Bankrate found Connecticut had the third highest credit card debt of $6,237, based on numbers from Experian.
According to a new release from the Federal Reserve Board, outstanding consumer credit has increased nationally over the past year, with revolving credit like credit cards increasing at an annualized rate of 16.9 percent.
A report by the Federal Reserve Bank of New York found credit card debt increased nationally by $46 billion in the second quarter of 2022, marking a 13 percent year-over-year increase, “the largest in 20 years,” although they added that credit card typically increases in the second quarter.
However, Connecticut also has one of the highest median incomes in the country, meaning workers here typically have the financial wherewithal to handle higher credit card balances.
Experian found that Connecticut’s debt to income ratio was 1.28, putting Connecticut in line with other states like Nebraska for having one of the best debt to income ratios.
But credit card debt affects people differently depending on their income levels. According to Annuity.org, the lowest income earners tend to have the highest debt to income ratios.
Annuity also found Connecticut had the second highest average credit card debt in the nation and some of the lowest financial literacy rates, adding that, generally, states with higher costs of living are associated with higher credit card debt.
Interest rates were lowered in response to the 2008 recession before it slowly crept back up to 2.5 percent, before being lowered again in response to the 2020 COVID-19 pandemic. With the latest increase, the federal reserve interest rate now matches 2019 and experts believe another increase may come in September.
The Federal Reserve Bank increased interest rates by .75 percent twice this year so far as they sought to cool down inflation that hit 9.1 percent in July.
All this means consumers may be seeing a higher minimum payment on those cards as the Fed moves to increase interest rates, leaving many consumers feeling a bigger pinch as they navigate prices that have surged in 2022.
