An alarming 77 million Americans have delinquent personal debts reported in their credit files.
Translation: more than one-third of Americans are in trouble when it comes to paying their debts on time.
In a 2014 study by Urban Institute titled Delinquent Debt in America, a whopping 35 percent of adults with a credit file, have a report of personal debt in collections.
That means the debt is so far past due that the account has been closed and placed with a collection agency or sold to a third party debt collector. This typically happens after the bill has not been paid for 180 days. (Federal regulations require creditors to charge-off revolving credit accounts after 180 days of payment delinquency).
It also means the debt has been reported to credit bureaus and can affect the debtor’s credit score.
These adults owe an average of $5,178 (median $1,349). This report focuses on non-mortgage bills, such as a credit cards, medical bills, wireless phones or utility bills that are in collections. Other bills include child support, parking tickets or even unpaid gym membership.
Why Does This Report Matter?
This data shows clearly that a huge number of Americans are still struggling with personal financial crises brought by the Great Recession.
Financial distress is a daily challenge for millions of American consumers.
In addition to creating difficulties today, delinquent debt lowers credit scores and has serious consequences for the future. For example, credit scores are used to determine eligibility for jobs, access to rental housing and mortgages, insurance premiums, and even some student loans.
High levels of delinquent debt and its associated consequences, such as limited access to traditional credit, can harm both families and the communities in which they live.
Debt in collections can remain on a person’s credit file for up to seven years.
One more thing: A lot of people themselves may not even realize they have debt in collections. Some consumers reported becoming aware of this debt only when they reviewed their credit report. For example, some patients who thought their insurance had picked up their medical bills may be unaware that the provider sent the bill to collection.
You should form a habit of checking your credit reports regularly and take steps to correct any wrong entries. And if you’re one of those drowning in debts, you should take steps to pay them off.