A Third of Americans Have an Account in Collections

Every day I read some new tidbit on debt in America, but a recent study by the Urban Institute took me a bit by surprise.

“Roughly 77 million Americans, or 35 percent of adults with a credit file, have a report of debt in collections. These adults owe an average of $5,178 (median $1,349). Debt in collections involves a non-mortgage bill—such as a credit card balance, medical or utility bill—that is more than 180 days past due and has been placed in collections. “

As someone who has had more than a few accounts ‘in collections‘ in the past, I understand how easy it is to do on a personal level.  But on a national level these are some pretty telling figures.

Why so blue?
Why so blue?

Consider that the median amount is $1,349.  That means that half of those 77 million account in collections are really for a pretty small amount.  This is good news in that those people aren’t in huge debt (at least in collections).  But it’s very bad news that thirty some million people cannot come up with a thousand bucks to keep an account current.

But then there’s this second piece of information from the study:

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 non-mortgage payment. 

If you read this piece alone you would think we’re all doing pretty well!  Only 5% of the people in America are late on payments?  That’s great.

But if you put both of those pieces together it gets more interesting.

Just because he can do it, doesn't mean me should too
Just because he can do it, doesn’t mean we should too

You have about 60% of the country totally current on their credit accounts, another 5% a bit late, and the remaining 35% totally unable to pay their bills.  Likely this last group has quite a few accounts in collections.  This explains why the median is so low – one may have multiple small debts to their phone provider, electric company, department store, etc.

Further, this 35% of people also includes those way behind on medical payments, in addition to utility and credit card payments.  Medical expenses are still the leading cause of bankruptcy in the U.S.  So this may help to explain why the average debt is so much higher than the median.

As a country it seems we are living too close to the edge with our finances.  One good hiccup from life and we move quickly from the black, through a fast 5% of barely late, right into  the ‘in collections’ bucket.  All of the above is a good reminder for why it’s so very important to have an Emergency Fund.

What’s your take from the study?  Have a good story about your own debt issues?

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