A Third of U.S. Adults Have Debt ‘in Collections,’ Report Says

Photo (cc) by meddygarnet

Do you have delinquent debt? Apparently, you’re part of a very large group.

A new study by the Urban Institute, a Washington think tank, and Encore Capital Group’s Consumer Credit Research Institute found that last year more than 35 percent of U.S. adults with credit files – or 77 million Americans — had bills that were unpaid for so long that they were considered “in collections.”

What does that mean? CNN Money explains:

Once it is categorized as in collections, … it can follow one of three courses, according to the Urban Institute report. The creditor can charge it off and sell it to a debt buyer, put the account into default, or seek to collect what’s owed through an in-house department or a third-party debt collector.

The Urban Institute used 2013 data from credit bureau TransUnion to measure Americans’ past-due, non-mortgage debt. In the 7,000 credit files studied, that debt ranged from as little as $25 to a jaw-dropping $125,000. The average non-mortgage debt in collections was $5,178. The median was $1,350.

The debt in collections included credit card bills, medical bills, child support payments and car loans, as well as unpaid parking tickets, past-due gym membership fees and unpaid cellphone contracts. How old unpaid debt has to be to go into collections varies; for credit cards, it’s more than six months, CNN Money says.

According to The Associated Press:

The study points to a disturbing trend: The share of Americans in collections has remained relatively constant, even as the country as a whole has whittled down the size of its credit card debt since the official end of the Great Recession in the middle of 2009.

Although the number of Americans with debt in collections sounds unbelievably high, that number hasn’t changed much in the past 10 years, says The Wall Street Journal. It further explains:

A combination of issues is at work. For one, debt in collections stays on consumers’ credit reports for at least three years. So a debt that was in default in 2007 is just coming off credit reports this year. Delinquencies built up during the dog days of the recession will only start to disappear in the next few years. Meanwhile, some people might not even know they have unpaid balances.

“Consumers themselves may not realize they have debt in collections. Some consumers report becoming aware of this debt only when they review their credit report,” according to the Urban Institute report.

From a geographic standpoint, delinquent debt is spread across the country, although Nevada had the highest percentage (47 percent). North Dakota had the lowest, with just 19 percent.

Delinquent debt can have long-lasting implications. According to CNN Money:

“[It] can harm credit scores, which can tip employers’ hiring decisions, restrict access to mortgages, and even increase insurance costs,” said Caroline Ratcliffe, a senior fellow at the Urban Institute.

Indeed, the case can stay on your credit report for up to seven years even if you’ve paid off the debt. And it will lower your credit score for years.

The Urban Institute also said that about 1 in 20 Americans are past due on an account by 30 to 180 days, though it’s not in collections yet.

Are you surprised that 77 million Americans have unpaid debt in collections? Share your thoughts below or on our Facebook page.

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