The US states whose residents are relying the most on debt to make ends meet amid the COVID-19 pandemic and economic trauma have been revealed in a new report. While the finances of households across the US have been disrupted throughout 2020, the District of Columbia has been named the state where the highest proportion of people are leaning heavily on the best personal loans online and credit cards simply to get by.
The rankings have been determined by LendingTree, whose analysis of US Census Bureau data leads to the uncomfortable conclusion that ever larger numbers of Americans are starting to sink under the weight of their debts. For many, the relief afforded by the initial coronavirus stimulus payment is long in the past, while the passing of the enhanced unemployment benefit package, and lack of a replacement scheme, is starting to bite hard too. Worryingly, the end result for many is that family, friends, the best credit cards and personal loans are the places where they now have to turn.
The states where debt is being used the most
At a national level, just under a quarter (24%) of adults say they use credit cards or loans to meet spending needs, and 12% are taking a loan from family or friends. However, the situation varies widely across the US, with residents in some states taking on additional debt in far greater numbers than in others.
Ranking first is the District of Columbia, where up to 44.9% of residents are using debt to get by financially week-on-week - some 30.7% of citizens revealed they use credit cards or loans to see them through, while 14.2% said they borrowed from friends or family. Just over one in five (20.6%) have dipped into their savings, and only slightly fewer (18.2%) had been using their economic stimulus payment to cover their weekly outgoings.
The worrying aspect of the latter is that by mid-June more than eight in ten had already received or were expecting to receive their stimulus payment - fast-forward around three and a half months, and it seems likely many of these people will have exhausted the payment and now be seeking alternative ways to make ends meet.
In second place is the state of Colorado, where up to 42.1% of residents reported taking on debt to meet everyday spending needs. Credit cards or loans (26.7%) were almost as likely to be used to cover pressing financial needs as using savings or selling assets (28.5%). However, with the state enacting limitations in late June that protect up to $4,000 in bank accounts from wage garnishments, the move could help make savings a more viable alternative for those already dealing with debt.
Ranking in third place is Nevada, a state that records an unemployment rate of 14%, one of the highest in the US. As a consequence, more than a quarter (25.3%) of residents use credit cards or loans to pay for weekly expenditure, while 16.7% borrow from family or friends.
|State||Credit cards or loans||Borrowing from friends or family|
|District of Columbia||30.7%||14.2%|
What to do if you’re relying on debt to get by
If you’re having to borrow to make ends meet, the first thing to do is check whether there’s any way you can cut back on your spending. Obviously rent and food is a must, but are there any small luxuries that you can live without in order that might save you a few extra dollars each week? At the same time, make sure you’re claiming all the financial support that you might be due, such as unemployment benefit and the stimulus check, if you haven’t done so already.
“A budget is a crucial first step,” says Matt Schulz, LendingTree’s chief credit analyst. “It’s virtually impossible to make a meaningful plan to attack credit card debt if you don’t know exactly how much money comes in and goes out of your household each month.”
Call your lender
If your struggles are more pandemic-related, contacting your lender — whether it be for personal loans or credit cards — to discuss your problems is a must. Most lenders will be willing to work with you to find a solution, like pausing payments for a few months, to give you the chance to get your finances back on track.
Watch your credit card usage
Don’t be afraid to use a credit card over a debit card to pay for online shopping - this has become almost the norm of late, because it’s safer for your finances. However, “there’s no question that credit cards can make it easier to spend money you don’t have,” Matt Schulz says. “That makes it crucial that you use that card wisely, including paying the card balance in full each month. That’s not always realistic for folks, but it should always be the goal.”
Use credit cards and loans first
If you do need to borrow - and in difficult times such as now, for some people it’s unavoidable - make sensible choices over the type of debt you take on. Always see if family and friends can help you first, and then maybe consider a credit card ahead of a personal loan. The advantage with a credit card is that they provide the opportunity to borrow interest free if you manage to raise the funds to pay off your entire spend at the end of each month. Personal loans are probably best if you have a sudden and large expense that you need to pay for, and know it’ll take you years to pay off what you borrow.
“A lot of the normal rules of personal finance go out the window during times like these,” adds Matt Schulz. “Yes, good credit is important, as is avoiding debt. However, keeping food on the table and keeping the lights on for your family is more important.”
Avoid payday loans
Whichever option you take, both will always be preferable to taking out even one of the best payday loans, which can quickly lead to high and fast-accumulating debt if you fail to pay back quickly what you owe. The alternatives to a payday loan will almost always be far better for you in the long run.
Take charge of your debt
One of the most important steps to getting out of debt is to acknowledge that it exists. So if you’re worried your debt is starting to become an issue, get help. Debt counseling services are available to hear your problems and try to find a solution, while the best debt consolidation companies can help bring your debts together into one more manageable and affordable loan that you can pay back gradually over time.
Importantly, don’t simply let your debt spiral out of control without doing anything. As Matt Schulz concludes, “Far too many people just bury their heads in the sand and wind up overwhelmed by debt, and it doesn’t have to be that way.”