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Debt in America: Consumers Paying off Credit Cards

Consumers are keeping their plastic on ice, rapidly paying off their credit card debts.

Credit card obligations have fallen 10% since January, according to Credit Karma, a web site that offers free credit scores. Since this time last year, credit card debts have dropped a stunning 17%.

(Note to readers: This is part of a four-part series on debt, you can read the entire report starting here.)
Credit Karma compiled the data by analyzing the debt information contained in the more than 211,000 credit files accessed by users of the site. That gives the company a clear picture of how Americans are handling their credit cards, home mortgages, auto loans and student debt.

Most forms of debt, with the exception of student loans, are on the decline, says Kenneth Lin, chief executive of Credit Karma. But no where are Americans paying off their loans as fast and furiously as they are with their credit cards.

Admittedly, some of that is likely to be involuntary, Lin says. Issuers have pulled roughly $1 trillion in available credit away from consumers by cancelling cards and cutting credit limits over the past two years.

Still, the trend is a positive one. As Americans cut their reliance on high-cost debt, the cost-of-living comes down and consumers become increasingly financially stable. That will lead to a healthier consumer segment that will be better able to thrive as the economy edges forward.

Some noteworthy facts about credit card debt in 2011, according to the Credit Karma data:

  • The average consumer owed $6,472 on credit cards in July, down 17% from a year ago.
  • Consumers in Colorado hold the largest credit card balances, owing an average of $7,543.
  • New Jersey residents aren't far behind, holding average balances of $7,531.
  • Residents of both Colorado and New Jersey have cut the amount they owe on plastic -- though not quite as fast as the nation as a whole. Colorado residents owe 16% less on credit cards today than they did a year ago; New Jersey residents owe 15% less.
  • The state with the smallest average credit card balance is Wisconsin, where the average consumer owes just $4,654.
  • Wisconsin also gets plaudits for paying off the most credit card debt, with average debt dropping 40% from $7,810. (However, Lin says this remarkable drop may be linked more to sample size than state-wide trend. The company has fewer customers in Wisconsin than highly populated states like California and New York.)
  • The second least-indebted state (at least with respect to credit cards): Mississippi, where the average consumer owes just $5,901 on plastic.
Where are consumers paying off the most credit card debt, besides Wisconsin?

Nevada: Average debt $6,096, down 23% from a year ago

Alaska: Average debt $7,528, down 22% from a year ago

Hawaii: Average debt $7,248, down 20%

Rhode Island: Average debt $6,269, down 20%

South Dakota: Average debt $6,661, down 19%

Missouri: Average debt $6,189, down 19%

Massachusetts: Average debt $6,429, down 18%

Maine: Average debt $6,374, down 18%

California: Average debt $6,332, down 18%

Minnesota: Average debt $6,006, down 18%

For more information about how Americans are handling their debt, check out the other articles in this series:
Debt in America: Most and Least Indebted States
Debt in America: States Where Mortgage Debt is Declining
Debt in America: Students Buried in Education Loans
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