The amount consumers owed on their credit cards in this year’s second quarter dropped to the lowest level in more than eight years as cardholders continued to pay off balances in the uncertain economy.
The average combined debt for bank-issued credit cards — like those with a MasterCard or Visa logo — fell to $4,951 in the three months ended June 30, down more than 13 percent from $5,719 in the same period a year ago, according to TransUnion.
The credit reporting agency said it was the first three-month period during which card debt fell below $5,000 since the first quarter of 2002.
Credit card debt remained the highest in Alaska, but slid 7 percent there to $7,148. A total of 22 states recorded debt higher than the national average.
Residents of Alabama paid off the most debt, dropping their average balance by 27 percent to $4,753.
More borrowers also made payments on time. The rate of cardholders past due by 90 days or more fell to 0.92 percent in the second quarter, from 1.17 percent last year.
That’s the first time the delinquency rate has been below 1 percent since the second quarter of 2007, before the recession, said Ezra Becker, director of consulting and strategy in TransUnion’s financial services unit. The rate fluctuates during the year, he said, but the improvement is more evidence that consumers are working to make sure their credit cards remain in good standing.
That concern reflects several economic factors, from the fear of unemployment to the fact that the collapsed housing market means it’s harder to cash in on home equity when money gets tight. “You can’t buy groceries with your house anymore,” Becker said.
Reflecting the weak economies in the states hardest hit by the housing crisis, the delinquency rate was highest in Nevada, at 1.5 percent of cardholders, followed by Florida, 1.24 percent, Arizona, 1.11 percent and California, 1.08 percent. In all, 16 states fared worse than the national average for delinquencies.
The lowest delinquency rates remained in North Dakota, at 0.54 percent, and South Dakota, at 0.55 percent.
In a twist, Becker said the foreclosure crisis could be helping to improve the timeliness of credit card payments and lower balances. When people don’t make mortgage payments, he suggested, they have a short-term cash boost.
“That can provide extra money to pay down credit cards,” he said.
Besides paying down debt, consumers are getting fewer new cards. Nationwide, the number of new accounts opened dropped almost 6.5 percent from last year.
TransUnion predicts that the national delinquency rate will remain below 1 percent for the rest of the year. However, on the high end, the Nevada rate is forecast to edge up to 1.6 percent.
Nail the credit card companies. This is great news, people aren’t letting themselves get taken by all the fees which is where the companies make large amounts of revenue.
Credit cards are a recent invention and a form of modern usury. I just received junk mail for one that “helps you establish credit” with a 19.9% rate! Unbelievable!
Oh wow, OK this makes a lot of sense dude.
http://www.isp-logs.es.tc
That’s very good news. Now for the bad: the number of people who HAVE $5,000 is at an 80 year low.
And NOW everyone can understand why they’re raising the rates on EVERYONE. Since they can no longer rely on the predatory practices of the past due to the new legislation and people are paying less in monthly interest because they’re paying down their balances, they raise the rates on everyone. This is great news. Keep paying it off people…
I agree with you Chuck on the fees comment, but the 19.9% for anyone under the age of 25 is the “normal” rate and forget asking for a lower rate no matter how good your credit is right now, they just aren’t lowering rates at all is what I was told from two different banks.
I’m surprised the article didn’t mention the other reason for lower debt, the increased interest rates on new and existing card holders (with good credit one card went up to 24%, it was paid off before the increase was activated). 18-20 year olds are becoming more and more aware of the trouble credit cards have gotten peers into so possibly they are being smarter about it.
Just paid off my card, YEAH! Take that greedy card companies. I am also trying to quit smoking. Sick & tired of giving my hard earned money away to crooks & politicians (redundant, I know)
The result of personal bankruptcies in this nation being at an unprecedented level. Duh!
hello????? the reason is they lower your available credit every time you pay you bill. so instead of having a card that you can charge 10 grand on its now 3500. when r we going to wake up and see the banks are the only ones making money right now. Use cash no more cards.
Personal debt reduction, managmement and discipline, imagine that. Maybe Pat “Jello” Quinn and Mikey Madigan can hire some of those folks as Dogbert Consultants to offer solid ideas on how to live within your means. Meanwhile, not only will the credit card “industry” be unhappy with this news, so will the Masters of the Universe. After all, massive and continual personal debt was a key foundation of the New Economy. Spend and debt, to prop up a never ending spree. Lastly, all those gleefully “sticking it to the credit card capitalist predators” … bully for you. Please do not however be too disingenuous about your “right” to use somebody else’s money while demanding low low rates. Ok, use the Berwyn credit plan .. 100% down, nothing left to pay. If though you want to float some debt (other peoples money) for a big purchase, fine, then either get a loan or … use those EVIL credit cards and repay promptly.
[[jim Today at 10:53 a.m.
hello????? the reason is they lower your available credit every time you pay you bill. so instead of having a card that you can charge 10 grand on its now 3500. when r we going to wake up and see the banks are the only ones making money right now. Use cash no more cards.]]
The banks gave people enough rope (credit) to hang themselves. They were more than happy to have people charged to their limit, paying interest, late fees. Now that people are defaulting on loans, the banks definitely are limiting the amount of unsecured debt they have.
Most people don’t know how to manage credit cards.
I completely agree that it’s down to the credit card companies lowering people’s limits every time they pay their bill. Not saying it’s a bad thing, I think it’s great that people are carrying less debt, just that this is a real part of the reason. That, and lenders jacking up rates to ridiculous levels with absolutely no basis, Citibank wanted to raise my rate by over 420% so I told them to stick it.
And people being lazy and walking away from their debts in bankruptcy instead of putting in the work to pay for what they spent like the rest of us.
Jennifer – it’s obvious you know nothing about bankruptcy.
Chapter 7 is liquidation. As in you have to liquidate assets that you cannot exempt in order to pay your creditors. The only time someone walks away with not liquidating anything are those who have no assets to sell.
Chapter 13 is up to five years of paying off your creditors. At the end of that time period, whatever’s left is discharged.
Creditors still get money. Just not what they were planning on.
Maybe my CC companies are sensing my increasing reluctance to use their plastic. I keep getting mailings imploring me to borrow cash from them — “Just fill in the enclosed convenience check!” — at interest rates that would embarrass the Mafia.
still a double edged sword. your credit cards are part of your FICO score that has become the gold standard for smarter debt purchases like homes (well, traditionally anyway) to get good rates. if you don’t spend money on plastic, at least occassionally, your score gets dung. i like the cash only plan and live by it most of the time, but the cards still come out–pay that balance every month folks and you’ll be ok.
“i can see for miles”, there’s a way to do both: put stuff on your credit card, but pay it off immediately before interest hits.
This is stupid. Put yourself in debt at 14 to 24% with a credit card, or save money at 1 to 2% in a bank. Unless forced get rid of all credit card debt, and start a 401k.
What credit card companies are not telling you is a good bulk of 90+ delinquent accounts have been either written off or sold off for pennies on the dollar to 3rd party collection agencies and law offices so the debtors can be sued. Not to mention most with high balances suddenly became high risk and had their limits slashed-most below their outstanding balances, who are now on the hook for extra fees for over-credit-limit fees. Card holders can’t use them so their monthly payments are just going towards balances, especially since they have to pay higher minimum payments. So, no, this story doesn’t have the positive bs the companies are trying to portray.
Why would anyone in their right mind put money into a 401k just to watch it vanish
I love my credit card and don’t even know the rate – I put everything I can afford on there, pay it off and rack up the miles. How can anyone get mad at the banks for offering this deal? Unless you buy things you can’t afford – hardly the bank’s fault.
mike and planwell good points. For most of the people who get these simple ideas on household finance, these are good tools. Unfortunately, a wide range of people don’t or perhaps get caught up in buying things now and thinking they’ll pay them later. Just like housing, it’s not this ~25% who make bad choices and are penalized. We all are, through stricter practices, to help make up that difference. That is was bothers my sense of fairness on the credit world.
How can this be? I’ll tell ya…
Record bankruptcy filings (ch 7 & 13) and increased mortage delinquencies.
This ‘news’ is only lipstick on a pig.
Credit cards is the devil…
mike Today at 1:31 pm
“i can see for miles”, there’s a way to do both: put stuff on your credit card, but pay it off immediately before interest hits.
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That’s what we do. Been handling things that way for years. We get all the “free” stuff, miles and merchandise, but pay no interest. We do that on any “free financing” we can find. We have bought several rooms of furniture, many great electronics, and some appliances that way.
I can’t remember the last time we paid a financing charge for anything besides our house in the last ten years.
Of course, that means you have to know how much you make, how much you can spend (my folks said that was called a budget), and spend time every week reviewing your positions so you make the payments on time. Not a high priority for some Americans.
Sometimes, though, things happen. Like unexpected hospital bills that top $75,000 after the insurance company pays out. Like losing your job in the middle of being stuck in the hospital, unplanned, for a month, and then having to fly back and forth across the country because your father has had a sudden health crisis that makes you take time away from the job you then got. It’s nice to feel like you have everything taken care of, but for many of us, life has taken some deeply unexpected turns, and we have ended up having to borrow money on cards that were at very low rates that then went haywire. Those of us with big debt are not always wild spenders. Hard times happen, with costs that we can not always cover.