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Credit Card Debt Reaches 8 Year Low

Aug 25 2010

Credit Card Debt Reaches 8 Year Low

In the second quarter this year, the amount owed by consumers on their credit cards fell to a low we have not seen for more than eight years. In this uncertain economy, those with credit cards went right along paying off their balances.

In the three months ending on June 30th, the combined debt (on average) for credit cards issued by a bank - for example those including a Visa or MasterCard logo - fell more than 13 percent, from $5,719 same time last year to $4,951, as is reported by TransUnion.

Reporting on credit, the agency said this was the first quarter in which they saw card debt decrease under five thousand dollars since the first three months of 2002.

Alaska retained the highest credit card debt, but even there is slid about 7 percent to $7,148. In total, twenty-two states reported that their debts were higher than the average, nationally.

Alabama residents managed to pay off the highest amount of debt - they dropped their average balance to $4,753, a reduction of 27 percent.

A larger percentage of borrowers also managed to make payments on time. Last year 1.17 percent of cardholders were past due by at least 90 days. At the same time this year, this number fell to .92 percent.

It was all the way back in 2007 (second quarter) that the delinquency rate was last below 1 percent - before the recession. according to Ezra Becker, who is the director of strategy and consulting in the financial services unit of TransUnion. He said that the rates fluctuates all through the year, but that the improvement we see is even more evidence that people are working to get their credit cards in good standing and keep them there.

Several economic factor are reflected in this concern - the housing market having collapsed, for example, means that it is much harder when the money is tight to make anything of home equity; not to mention the fear of unemployment. "You can't use your house to buy groceries any more," said Becker.

Nevada had the highest delinquency rate (1.5 percent of credit card holders), followed by Florida, Arizona and California, at 1.24 percent, 1.11 percent, and 1.08 percent respectively. This reflects the weak economies of those states which suffer the most from the housing crisis. In total, the number of states faring worse in delinquencies than the national average was sixteen.

North Dakota and South Dakota retained the lowest rates of delinquency, and .54 percent and .55 percent respectively.

Becker said that oddly, credit card payment timeliness and lower balances might be improved by the foreclosure crisis. He suggested that when people avoided making mortgage payments they get a cash boost, short-term at least.

"They may then have more money for credit card payments," he said.

Consumers are also getting fewer new cards thee days. The number of accounts opened this year was 6.5 percent down on last year.

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