West Memphis among hardest hit cities for consumer debt with interest rate hikes

If the Federal Reserve adds a 25-basis-point interest rate hike it will increase consumer credit card debt by $1.6 billion in 2018. When rate hikes since 2015 are added, consumers will pay an extra $8.4 billion this year, according to a WalletHub study.

Federal interest rate hikes are expected to hit many sectors of the economy including consumer credit card debt. At least 2,500 cities were surveyed to determine which areas would be hit the hardest.

WalletHub analyst Jill Gonzalez told Talk Business & Politics rising credit card debts are detrimental to families and the economy as a whole. When finance charges are calculated, the average consumer has a 14.89% interest rate on their credit cards.

“Credit card debt does not only speak to the financial health of American households. Exaggerated credit card debt also has the ability to foreshadow over-borrowing bubbles and even changes to lending standards. Historically speaking, in the past 30 years there were four times we have accrued as much debt as we have now, and each time, the charge-off rate rose the following year,” she said.

West Memphis was in the top 10 of all cities in the most sustained credit card debt. It was the only city in Arkansas to make that list, or the least sustained credit card list compiled by the study. Other hard hit cities include Camden, N.J., Harvey, Ill., Portsmouth, Ohio, Garden City, Kan., Cicero, Ill., Alamo, Texas, Greenwood, Miss., and Darlington, S.C.

Four metrics were used to determine which cities would be the least and most impacted. The metrics were months until payoff, average credit card debt, credit card debt increase, and percentage of people with credit card debt. Each metric was given a 100-point value with a score of 100 correlating to the most sustained credit card debt.

West Memphis residents added 10.2% to their credit cards in the previous year. About 28% of the population has credit card debt, and the average debt is $5,190. A federal reserve hike will cost the average person in West Memphis another $78 this year. It will take five extra hours of work to cover the cost.

There are several factors that could be the reason why a city has more or less credit card debt, Gonzalez said. Many states along the east coast including New York, Pennsylvania and Florida tend to have less of these types of debts, she said.

“Generally speaking, cities with an older population tend to have lower credit card debt. The reason behind this is simple. People are most prone to carry debt when they are young, setting up a household and settling down,” she said. “Low credit card debt typically goes hand in hand with other positive economic traits, such as higher credit scores, fewer late payments, lower unemployment levels and high education levels being only a few examples. And, of course, we must not overlook the cultural differences regarding the different perspectives on banking and borrowing.”

A rate hike is expected as soon as Wednesday (March 20), and there could be as many as three more in 2018, Gonzalez said. Hikes are often based on economic conditions which of late have been relatively strong. The U.S. added 313,000 jobs in February, and wages have been on the rise. More than three hikes this year could cause volatility in the markets, she said.

West Memphis is one of the largest cities in the Arkansas’ Delta Region. The Crittenden County seat has an estimated population of about 25,000, and the median age in the city is 34. Median income is $30,632 in the city, according to the U.S. Census Bureau. About 31% of its residents live in poverty.

Economists aren’t concerned with the rising credit card debt given the strength supporting the customer behavior. Despite volatility in the equity markets of late, unemployment remains low, housing prices are rising and corporate earnings also represent solid financial footing for many sectors of the economy.

Consumer sentiment rose last month to its second highest level since 2004 because of their take on the economy.

“Consumers based their optimism on favorable assessments of jobs, wages, and higher after-tax pay,” said, Richard Curtin, director of the University of Michigan consumer survey. “Economic news heard by consumers continued to be dominated by the tax reform legislation and net job gains, which was untarnished by the consensus view that interest rates would increase and stock prices would remain volatile.”

Talk Business & Politics senior reporter Kim Souza contributed to this report.