1 in 3 Americans Have Debt in Collections

debt in collections

Adults with Debt in Collections, 2013*

One out of every three American adults have had at least one account put “in collections” in 2013.  This is according to a recent study done by the Urban Institute.

The study analyzed data from more than 7 million consumers and found that 35% of American adults with a credit history had debt in collections in 2013.  The data was collected by TransUnion, one of the three major credit bureaus.  Debt in collections were nonmortgage debt, which includes credit card debt, medical bills, gym memberships, utility bills, etc.

The average amount of debt in collections for the U.S. was $5,178 per person.  The District of Columbia had the lowest average dollar amount owed per person at $3,547.

The study also showed that the entire country has a problem with debt.

North Dakota was the state with the lowest percentage of residents with debt in collection and still had 19%.  Nevada was the highest at a whopping 47%, but it was not the only state with 40% of residents with debt in collections.  Fourteen (14) other states – 11 of them in the South – had over 40% of residents in collections.

The study didn’t even include underserved Americans who don’t have access to the credit system.  These are another 70 million Americans who are also struggling with debt.

The debt needs to be late for 180 days in order for the account to be released to debt collectors.

According to the Urban Institute report, the debt can follow three courses once it is categorized as in collections.  The creditor can sell the unsecured, charged-off account to a debt buyer; the creditor attempts to collect through a third party; or the creditor puts the account in default.

debt in collections

Source: Urban Institute

Either one of these paths does major harm to your credit.  It can affect your credit score for up to seven years, which can restrict your access to getting a loan and can sometimes increase your insurance costs.  In some cases, it can also affect your chance of getting a job.

What Should You Do?

The best way is to avoid debt all together.  Getting control of your expenses will prevent you from going into debt.

If you are already in debt and are afraid of defaulting, make sure you get a debt repayment plan.  Most times you can do it yourself by budgeting and using either the Snowball Method or the Avalanche Method to pay off debt.

Also, always check your credit report.  The reason some of the people were sent to collections last year was not because they had current debt, but because they forgot about an account in the past.  Not paying attention to your credit report is a common money mistake most of us make.

If you have collectors harassing you, know that you have rights.  You can file a complaint with the Federal Trade Commission and with the Consumer Financial Protection Bureau.  Also check out the FTCs “Dealing With Debt” page so you know how to deal with debt collectors.

Once you have the collectors off your back, you can think clearly and can put together a budget to start paying off the debt and eventually be debt free.

*[Photo credit: Urban Institute]

5 comments

  1. Those statistics are sad but not surprising at all!

    I also agree that some debt is a simple mistake. A few years ago, my husband got a collections letter from an old utility bill he had in college. It was something like $27! He had no idea.
    Holly@ClubThrifty recently posted…Who Wears the Financial Pants in Your Family?My Profile

  2. Kara says:

    Wow 1 in 3! I guess I shouldn’t be too surprised, but that’s a little bit alarming!
    Kara recently posted…Does a Garden Save Money?My Profile

  3. Kipp says:

    Last year I had a letter about an old parking ticket I had completely forgotten about. I remembered once I got the ticket I went online to pay but was furious I had to pay a surcharge to pay the parking ticket and figured I would some time before class would start at college. Well that sometime did not occur. But I remember the late fees started after only like 3 days or something ridiculous. Best choice would have been to pay right away… I guess this decision actually costed me less than what their late fees were attempting to charge me. If the school’s ramp wasn’t full ALL THE TIME I wouldn’t of had this problem.
    Kipp recently posted…Earn Money Over 10 Times In a SINGLE TransactionMy Profile

  4. Wow – that’s terrible… though like others have said I’m not surprised. My teenage sister (19) bought a TV like a year ago, she put it on hire purchase. She quit her job, randomly, and then couldn’t afford to make payments on the TV. As such, she ended up owing a LOT of money on it. She recently sold the TV for peanuts and is now in debt for something she doesn’t even own. Silly.
    Christine Berry recently posted…We’re in Bali + How to Deal With Money On the RoadMy Profile