July 30, 2014
Report shows 35 percent of Americans facing debt collection
A new report shows that more than 35 percent of Amercians have debts and unpaid bills that have been reported to collection agencies.
The Urban Institute’s “Delinquent Debt in America” report further notes that roughly 1 out of 20 people with a credit file are at least 30 days late on a credit card or other non-mortgage account.
Students are especially hard-hit.
Genny Munoz, a counselor at Cal Poly Pomona who also administers students loans, said 3.6 percent of the student loans issued there over the past three years have gone into default.
“Most students who graduate probably have about $27,000 of debt,” she said.
Some are luckier than others.
Sarah Beshir, a student at Pasadena City College, owes about $7,000 in student loans. But she figures she’ll pay that off fast enough once she graduates and gets a job.
“I’m majoring in political science and getting my master’s degree in engineering,” the 22-year-old Altadena resident said. “It will really depend on the kind of job I get, but I think I’ll be able to pay it off in two or three years.”
She may be in a minority.
A companion report from Urban Institute reveals that in September 2013 the total average debt per American with a credit file stood at $53,850. The amount of debt in collections among Americans varies widely from less than $25 to more than $125,000. But the average amount owed is $5,178, the institute said.
People who owe significant amounts of money often struggle to pay their monthly utility bills and meet other financial obligations. That can lead to financial stress, health risks and insolvency if the debts aren’t repaid.
And there are other far-reaching effects. Delinquent debt can also lower credit scores, which are used to determine everything from eligibility for jobs and access to rental housing and mortgages, to insurance premiums and access to future credit.
The Urban Institute study also highlights 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 mid-2009.
Some would argue that living in debt is simply the American way of life.
Brad Levin, president of Legacy Wealth Partners in Woodland Hills, wouldn’t disagree.
“I see that continuing,” he said. “What we’ve seen over the past five years is that the economy has more than recovered. But there is now a greater divergence between the haves and have-nots. Those who are wealthier with stock portfolios are doing better, but most of the population has not benefitted from this financial recovery.”
Wage levels are not up to where they were before 2008, he said, and many good paying jobs have disappeared.
But consumerism? That’s alive and well, according to Levin.
“Everyone has to get the latest and greatest gadgets — and they have to get them today and then finance them over time,” he said. “We are a country that really fosters consumerism.”
The news isn’t all bad.
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 and just 2.44 percent of card accounts are overdue by 30 days or more, versus the 15-year average of 3.82 percent.
But roughly the same percentage of people are still getting reported for unpaid bills, according to the institute’s study, which was performed in conjunction with researchers from the Consumer Credit Research Institute.
The collections industry employs 140,000 workers who recover around $50 billion each year.
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.
“But there are lots of ways to pay that off as long as the students work with the guarantors who service the loans,” Munoz said.
Delinquent debt is overwhelmingly concentrated in Southern and Western states. Almost half of Las Vegas residents — many of whom bore the brunt of the housing bust that sparked the recession — have debt in collections.
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