35% in U.S. face debt collection

These Americans are averaging $5,178 in arrears, study finds

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WASHINGTON — More than 35 percent of Americans have debts and unpaid bills that have been reported to collection agencies, according to a study released Tuesday by the Urban Institute.

These consumers fall behind on credit cards or hospital bills. Their mortgages, auto loans or student debt pile up, unpaid. Even past-due gym membership fees or cell phone contracts can end up with a collection agency, potentially hurting credit scores and job prospects, said Caroline Ratcliffe, a senior fellow at the Washington-based think tank.

“Roughly, every third person you pass on the street is going to have debt in collections,” Ms. Ratcliffe said. “It can tip employers’ hiring decisions, or whether or not you get that apartment.”

The study found that 35.1 percent of people with credit records had been reported to collections for debt that averaged $5,178, based on September 2013 records. 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.

As a share of people’s income, credit card debt has reached its lowest level in more than a decade, according to the American Bankers Association. People increasingly pay off balances each month. Just 2.44 percent of card accounts are overdue by 30 days or more, versus the 15-year average of 3.82 percent.

Yet roughly the same percentage of people are still getting reported for unpaid bills, according to the Urban Institute study performed in conjunction with researchers from the Consumer Credit Research Institute. Their figures nearly match the 36.5 percent of people in collections reported by a 2004 Federal Reserve analysis.

All of this has reshaped the economy. The collections industry employs 140,000 workers who recover around $50 billion each year, according to a separate study published this year by the Federal Reserve’s Philadelphia bank branch.

Health care-related bills account for 37.9 percent of the debts collected, according to a new report commissioned by the Association of Credit and Collection Professionals. Student loan debt represents another 25.2 percent, and credit cards make up 10.1 percent, with the rest of the collections going for local governments, retailers, telecoms and utilities.

The Urban Institute’s Ms. Ratcliffe said stagnant incomes are key to why some parts of the country are struggling to repay their debt. Wages have barely kept up with inflation during the five-year recovery, according to Labor Department figures. And a separate measure by Wells Fargo found that after-tax income fell for the bottom 20 percent of earners during the same period.

The delinquent debt is overwhelmingly concentrated in Southern and Western states. Texas cities have a large share of their populations being reported to collection agencies: Dallas (44.3 percent), El Paso (44.4 percent), Houston (43.7 percent), McAllen (51.7 percent) and San Antonio (44.5 percent).

Only about 20 percent of Americans with credit records have any debt at all. Yet high debt levels don’t always lead to more delinquencies, since the debt largely comes from mortgages.

United States - North America - Texas - Florida - California - San Jose - McAllen


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