Californians have a serious problem with debt- Freedom Debt Relief has found that, according to data from the Bureau of Labor Statistics and the Bureau of Economic Analysis, residents of California have about 2.35 times more debt than they do income. The average per-resident debt of a California resident is about $65,740, and the average income is about $28,000. This discrepancy between income and debt has resulted in a report by FitSmallBusiness.com that ranks California as one of the least likely states to survive a recession.
So why do Californians hold so much debt? Housing is a major contribution- California holds the highest average home prices in the United States. The California housing market is considered by experts to be one of the most volatile in the country; this traps consumers into a cycle of soaring mortgage rates and crashing prices that can leave homeowners owing more money than their home is worth when they try to refinance their house. It doesn’t help that California also has some of the highest average home prices in the nation. Freedom Debt Relief and their parent company Freedom Financial Network have found the average price of a single-family home in Los Angeles County currently stands at $610,000,which is up four percent from just a year earlier. Home prices in Orange County, which is considered one of the most expensive places to live in the entire world, are even higher; the median price for a single-family home in this area stands at $750,000, which is up 3.4% from a year ago. There’s no doubt that sky-high mortgages play a role in the high levels of debt that Californians hold.
California also isn’t faring well in the area of credit card debt. Again, Freedom Debt Relief has found that, according to a survey by TransUnion, California residents hold an average of $5,769 in credit card debt per person. This is considerably higher than other states; the average per-person credit card debt is $4,932 in North Dakota, and $4,833 in Nebraska for example. This high level of credit card debt may be attributed to the higher cost of living in California, which is considerably higher than surrounding states. California’s GDP has also seen a small depression in recent years as well; The Golden State’s GDP has fallen about 4 percent than the last recession. California’s unemployment, which is about 4.7%, which is considered to be on the lower end of state unemployment statistics.
California politicians are attempting to curb one area of debt through new policies- student debt. Democratic lawmakers in California have proposed one of the most drastic plans to reduce student debt so far in the country. The Degrees Not Debt program, if passed, would attempt to relieve the student loan debt of University of California and California State University students, as well as thousands of students attending community colleges. Students would still have access to Pell Grants, Middle Class Scholarships, and private and public university scholarships that are granted based on academic merit or talent. Students whose parents earn over $60,000 annually would be expected to help pay a percentage of their income to assist the student with tuition, and students would be expected to assist with their tuition costs by working part-time while in school.
The remainder of the costs of tuition- which is about $33,000 at University of California and $22,000 at California State schools- would be covered by the program. The program would also cover the cost of tuition for the first year of community college. The program would be implemented over five years, and cost an estimated 1.6 billion dollars. This proposed change would be added in addition to the current 2 billion dollars in federal financial aid that is currently available to California college students.
Freedom Debt Relief has found that, according to statistics by Make Lemonade, Californians hold an average student loan debt of about $22,191. This program aims to seriously cut down on the amount that students are taking out in debt, which eventually aims to curb the rising levels of debt that California as a whole holds.
So how would California fair should another recession hit? Economists currently say that The Golden State is not on the verge of another recession thanks to the structure of their economy. The United States currently shows few impending signs of a recession as a whole- for example, energy prices are low, and while inflation has risen, it has not reached the levels that experts have estimated so far this year. Both energy prices and the federal level of inflation would need to rise for a number of years to put Californians in trouble.
While California as a whole may not be headed towards another recession anytime soon, this does not mean that California residents should give up on reducing their debt. If you have credit card debt or need help improving your credit score, Freedom Debt Relief may be able to help you and your family. The financial experts at the Freedom Financial Network family of companies can potentially help you by creating a tangible plan to tackle your debt, form an emergency savings fund, and create a healthier financial future while savings for the things that are important to you. If you need help working to reduce your debt, there’s no shame in asking for help. By keeping yourself informed on smart credit decisions and working to build up your credit, you can help to safeguard yourself should another recession eventually roll around.