Debt is both the cause and consequence of Atlanta’s enormous racial wealth divide. Conventional wisdom tells us that debt has the potential to help families build wealth. Unless families have the ability to make cash purchases outright, debt is required, in most cases, to buy a home, purchase a car, pay for college, and more. But faith in debt ignores the reality that debt creates disproportionate financial risks for Black Atlantans. As a result of discriminatory public policy and financial systems, Black families have a disproportionate reliance on debt to make ends meet.40
Financial advisers argue that wise uses of debt products can promote prosperity, thus feeding a widespread promotion of programs and policies centered on financial education, credit repair, and more as tools to close the racial wealth divide. However, these services prioritize personal responsibility in a manner that ignores the systemic policy choices upheld by the structural determinants that created and maintains the racial wealth divide. They also carry the notion that good debt exists and works in service of building Black wealth. Structurally, we argue that there is no such thing as good debt. Instead, debt is extraction and looms over Black Atlantans in a manner that limits community wealth building opportunities.
It is understood that households create assets and wealth by incrementally saving some portion of their income. But continuous cycles of delinquent debt make it harder for Black consumers to put money aside, contributing to a $75 billion annual disparity in savings.41 In Atlanta, only 37 percent of Black households have at least $2,000 in savings compared to 89 percent of white households and 66 percent overall.42
Consumers use various forms of debt to cover costs, and some debts are directly connected to the ability to buy assets. For example, in the wealth-building space, analysts pay close attention to mortgage debt, which is a form of a loan. Mortgage debt enables individuals to purchase a home which is an asset that appreciates in value, can be transferred generationally, and enables wealth creation.
Not all debt is created equal though. For instance, debt held by white households is more likely to be mortgage debt than the typical debt of Black households – and the debt amount is twice as large.43 While some debt is used to purchase large assets like a home or a business, families under financial distress go into debt to cover daily expenses, often leading to a debt cycle. This disparity reinforces white households’ cumulative advantages over everyone else in the race to build wealth, and it reflects a trend that has persisted for more than a century.
The difference between what makes debt ‘good’ or ‘bad’ ultimately is the ability to pay. Delinquent debt is a significant problem that contributes to the ability to access credit and capital needed to purchase wealth and asset creation tools like a home, a car, or access to higher education. In Atlanta, 36 percent of residents are in delinquency, meaning they owe a debt that is 60 days or more past due. When disaggregated by race, the disparities in delinquency are illuminated. Forty-five percent of Black residents are in debt delinquency, compared to 21 percent of white residents.44
Debt delinquency can have devastating effects on the financial, social, physical, and mental health of everyone. Among individuals with consumer debt, those in financial distress or those struggling to repay debts are more likely to report lower life satisfaction and higher anxiety. Debt delinquency is also associated with depression.45 Moreover, higher unsecured debt is associated with increased risks of heart attack for Black adults.46
The sections below look at the role of three different types of consumer debt that affect Black wealth in Atlanta based on data available at the local level. These unsecured forms of debt do not require assets, typically have higher interest rates, and do not build value over time: student loan debt, medical debt, and credit card debt.
Despite higher education being presented as a solution to improve wealth outcomes in Atlanta, the pursuit of higher education comes at an extreme cost that falls disproportionately on the backs of Black people in the form of student loans. Because of systemic racism, the inequitable distribution of wealth, a stratified labor market, and rising college costs, Black borrowers are among those most negatively affected by student loans.
Black people borrow the most and struggle the most with repayment. One year after completing their bachelor’s degree, Black borrowers owe $39,043, on average, in principal and interest, compared to $28,661 for White borrowers. Twenty years after beginning repayment, the median Black borrower still owes approximately 95 percent of their original balance, whereas the median white borrower has paid down nearly 95 percent of their balance.47
In 2023, the Student Borrower Protection Center (SBPC) analyzed zip-code level data on student loan debt for Atlanta. The data shows that the student loan problem has ballooned into a critical state for Black borrowers in recent years. Roughly 1-in-7 borrowers in majority-Black Atlanta neighborhoods owe more than $100,000 in student debt — a rate 50 percent greater than borrowers in majority-white neighborhoods.48
Black neighborhoods in Atlanta had higher student loan balances than predominantly white neighborhoods. These disparities have grown over the decade. By 2018, average student debt in majority-black zip codes was nearly $7,000 more than in majority-white zip codes, compared to slightly over $1,500 more in 2010.49
Recent research shows that 52 percent of Black households with student loans have zero or negative wealth compared to just 25 percent of Black households without student debt. Sixty-four percent of Black student debt borrowers report that student debt negatively impacted their mental health. Student debt drastically affects Black borrowers’ ability to build wealth in Atlanta.
Medical debt is one of the most common forms of debt held by consumers. The Consumer Financial Protection Bureau (CFPB) estimates that $88 billion of medical debt is in collections nationwide, making medical debt the leading cause of bankruptcy in the nation.50 While data is insufficient to capture the magnitude of medical debt specifically for Black Atlantans, some data does provide insight into the local disparity. In Atlanta, only seven percent of white households have medical debt in collections, compared to 21 percent of households of color.51
Medical debt is explained primarily by health incidents, income, and access to health insurance.52 Black Atlanta residents are at particular risk of increasing medical debt, given that Atlanta exists in one of seven states that have yet to expand Medicaid. A June 2022 survey of Georgia adults, where Medicaid has not been expanded, found that 37 percent of Black Georgians have medical debt. Research shows that insurance accounts for about 20 percent of medical debt.53 While Black residents comprise 48 percent of the city population, they account for 69 percent of the uninsured. Race and place are linked –neighborhoods with higher percentages of Black residents have higher uninsured rates.54
Credit card debt is more common in Black households than in white households. Credit card debt is another common form of consumer debt that can limit the wealth and asset creation prospects of Atlanta’s Black households. Like other forms of consumer debt, Black households have a rougher start catching up on repayment. While the local data is insufficient to disaggregate for Black residents, data does show that Atlanta residents of color are 4.5 times more likely than white residents to have delinquent credit card debt.55
Relying on credit card debt to stay afloat comes at a cost. Black households report disproportionately higher interest rates, which adds to their balances and prolongs their debt repayment period.56 COVID-19 has exacerbated the disproportionate take-up of credit card debt. Even after controlling for economic differences, Black adults are more likely to use credit cards or borrow money to cover costs like food, gas, or rent. This was especially true during the pandemic when someone in the household lost their job.57
Higher levels of debt and delinquency lowers credit scores and limits access to other forms of credit. Access to credit is understood as the ability to borrow against one’s own assets to finance a purchase. When times get tough financially, families can turn to credit to help address financial shocks or to make large purchases. However, the ability to access credit is heavily dependent on credit scores in the United States.
Credit reports help determine access to and costs of debt, with low credit scores limiting the options available to borrowers. In the United States, racial discrimination in credit reporting has led to racial disparities in debt. Credit score systems are well known to contain racial bias and have been shown to increase racial disparities as studies show that Black populations have substantially lower scores than white households on average.58
Within cities, predominantly white neighborhoods have significantly higher average credit scores than neighborhoods primarily home to people of color.59 Evidence suggests that discrimination is a root cause—credit score disparities cannot be fully explained by income level and length of credit history.60
It is worth noting that there are roughly 26 million Americans who are “credit invisible,” meaning they have no credit history with any of the nationwide credit reporting agencies.61 In other words, consumers in this category are completely locked out of the current credit scoring system altogether. Black and Hispanic people and those living in low-income neighborhoods have higher credit invisibility rates.62
Black households tend to have low credit scores due to several factors, including lower rates of homeownership, higher rates of delinquent debt, predatory lending and more.