35% of American Adults Have Debt 'In Collections'

New submitter meeotch writes: According to a new study by the Urban Institute, 35% of U.S. adults with a credit history (91% of the adult population of the U.S.) have debt "in collections" — a status generally not acquired until payments are at least 180 days past due. Debt problems seem to be worse in the South, with states hovering in the 40%+ range, while the Northeast has it better, at less than 30%. The study's authors claim their findings actually underrepresent low-income consumers, because "adults without a credit file are more likely to be financially disadvantaged."

Oddly, only 5% of adults have debt 30-180 days past due. This latter fact is partially accounted for by the fact that a broader range of debt can enter "in collections" status than "past due" status (e.g. parking tickets)... But also perhaps demonstrates that as one falls far enough along the debt spiral, escape becomes impossible. Particularly in the case of high-interest debt such as credit cards — the issuers of which cluster in states such as South Dakota, following a 1978 Supreme Court ruling that found that states' usury laws did not apply to banks headquartered in other states.

Even taking into account the folks who lost a parking ticket under their passenger seat, 35% is a pretty shocking number. Anyone have other theories why this number is so much higher than the 5% of people who are just "late"? How about some napkin math on the debt spiral?

Comments

Lies and statistics...

[mythosaz]

This was discussed on Fatwallet today, and most of the sensationalism was debunked quickly.

http://www.fatwallet.com/forum...

A few juicy tidbits:

More details: "An alarming 35 percent of people with credit files have debt in collections reported in these file s . This percentage is nearly identical to results from a 2004 analysis of credit bureau data by the Federal Reserve, which found that 36.5 percent of people with credit report s had debt in collections reported in their file s (Avery et al. 2004). Note that 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 (CFPB 2013)"

...and...

The actual source: http://www.urban.org/publicati...

Only 5.3% are currently past due on a bill. "5.3 percent of people with a credit file have a report of past due debt, indicating they are between 30 and 180 days late on a nonmortgage payment"

So most of the people have old debts which could be up to 7 years old.

So there you go. A lot of us have an outstanding medical bill on our credit reports, and we should check them more often.

Re:Lies and statistics...

[Austerity Empowers]

The medical thing is important, more than once I've been told my debt is being sent to collections because the hospital and insurance were bickering over who pays what. My wife and I have adopted a policy of not paying until at least 6 months later, or after those two sort it out, since you can never get your money BACK once sent, but until they settle it out there's no way to know what is owed. There has also been a case where something was on my bill to the hospital that was not a rendered service, and having disputed it endlessly, the hospital would still not relent that my 6 yo son had required a breast pump for his treatment.

I've also heard of, particularly gym memberships, being sent to collections because the company had constructed a labyrinth of obstacles to cancelling membership (e.g. Gold's Gym). So people would simply stop paying, and ultimately be sent to collections for non-payment of a service they didn't use. I suspect this form of collections will be on the rise, as the growing trend of writing mandatory recurring payments into contracts increases. I fully support anyone who cancels such things de facto (as long as they actually stop using the service), it's a horrible practice.

Re:Lies and statistics...

[mythosaz]

I actually suspect that's a lot of people's 35%.

We've been fighting a small medical bill because the hospital couldn't bill insurance correctly. Bill trickle in after major events (doctors and other specialists bill separately, badly, incorrectly coded) and rarely are they all seamless. Even perfectly covered items might leave a hospital (or doctor, or...whatever) chasing you around the world for a co-pay. ...and knowing they'll rarely see it, they sell them for pennies on a dollar to debt collectors who'll ding your credit.

If my wife wasn't a benefits specialist in a previous life, we'd drown in the things - all so badly handled by incompetent billers and insurers.

Re:Not surprised.

[anagama]

I have a "debt" in collections right now. Comcast claims I owe $95 to them. Last winter I moved to a place where I could not only get other service, Comcast doesn't even serve (thankfully). So I told Comcast I'd be terminating my service effective Jan 15. Comcast had my credit card to auto-bill for it's "service".

Then in March I started getting collection calls from companies Comcast hired to get this from me. Nobody will prove to me that I actually owe this money. And what's odd is the amount: $95 when my monthly bill for internet-only service was about $60 or $70. I just got another call yesterday on it.

I could easily pay it and never even feel the hit. But fuck that! Comcast sucks beyond the ability of science to measure and I'm so sick of being taken by them, they're going to have to take me into small claims court and get a court order for this sum.

And yeah, I get that this will harm my sterling credit rating, but what a great means of extortion. Bill people small amounts under the threat of losing their good credit rating and even when people don't actually owe the money, they'll pay up to save their rating.

Re:The American Dream

[ShanghaiBill]

its cute that you people can take a large and complex problem with many angles and reasons and boil it down to a simple catch phrase you heard on talk radio

This is especially silly considering that actual socialist countries don't have consumer credit at all. Do you think Cuba has people in collections? I lived in the People's Republic of China for several years (which is nominally socialist) and everything was based on cash. I paid cash for my cell phone (I was not even asked for my name or ID) and paid cash for the minutes. I would buy token cards for my electric meter, and feed them in to pre-pay for home electricity. The electricity company neither asked, nor cared, who was living in the apartment, and certainly had no need to do a "credit check". I had electricity five minutes after I moved in.

In America, I have been in collections several times. Usually when they send the bills to the wrong address, or I move and forget to shut off the trash service, but the bills still go to the old address. It was always for something that I would have preferred to pre-pay, if that option had been available.