A Third of Americans Are Delinquent on Their Debts

Would you believe that 35% of Americans are in collections for unpaid debt? According to a massive study just released by the Urban Institute that is the case.

What’s the Scoop About Debt?

Now you do not go into collections until the debt holder gives up and closes the account, reporting it to the credit bureaus and selling it to a collection agency. Ordinarily the debt must be over six months overdue for this to happen.

pile of debts

With two exceptions, states with the highest percentage of people into collections are concentrated in the South where incomes are lowest and the economic crisis proved more painful. Nevada, where the housing crisis was the worst, and Washington, D.C., were the other two.

As bad as it appears, because this includes only those with credit scores and does not include payday loans or other off the books loans this figure likely does not include the full extent of uncollected debt.

The Meaning of Collections Debt

Lower income Americans are typically not represented in the credit rating system. This means that very likely at least half of Americans are not able to keep up with their expenses.

The average debt among those in collections is $5,200.00. This includes unpaid credit card bills (a major component) but also medical bills, utility bills, child support and sometimes fees such as parking tickets. In total this includes some 77 million people.

news-higher-food-prices

The fact that so many people are so strapped as to be in collections is a reflection of the economic setback of the last few years. While technically we are not still in a recession, that definition is as meaningless as the technical meaning of inflation that simply does not describe the reality of people’s lives.

Even if prices were not going up at all (even though they are) the fact that household income has declined over $4000.00 a year and millions of people are no longer working at all, means that many people simply cannot pay their bills.

Is There a Silver Lining?

Is there a positive side at all to the debt situation? Yes, in fact there is. Of the people who have credit reports, there are 20% who have no debt at all.

If there is hope for the American economy it is that at least one in five of us know that debt is destructive. We have eliminated it from our own lives. We are encouraging others to do the same. And if possible, one day we will convince the government to do the same.

debt-free-poster

One of the important parts of the Success With Money plan is to get rid of debt. First get in control of your money. That is always first. But then, your next step toward success is to get out of debt.

Personally, as discouraging as it is to know that over a third of our population is in debt to the extent that they are in collections, I am really encouraged to know that one in five of us have eliminated debt altogether.

Perhaps I have become too cynical, but to tell the truth I was surprised to see that so many have committed to live the debt free life. This is a positive fact.

Living Debt Free

No matter where a person stands today, tomorrow is another day. We can start from where we are, eliminate debt and move on to success with money.

Many people with enormous debt have been surprised to find that they really could pay it all off. And the really good news is what comes afterward.

Comments

  1. It is sad that with all the information out there, 35%+ of people continue to choose to live on the edge or over the edge of the debt cliff. In general I find there is very little difference between how a family making $50k/year lives compared to a family making $150k/year lives. They do the same things, buy the same things (for the most part) and want the same things. One family lives over the edge, the other is able to save and invest. There are certainly people living debt free and doing it right, but they are a fairly quiet group. We are in that group. Thanks for the information.

  2. Thanks for the comment, Wade.

    You are certainly right. And it clearly has little to do with income. Many people with relatively small incomes live well withing their earnings and some in the top 5% live hand to mouth. Good to see you are in the debt free bunch. It is a great way to live.

  3. The best way to start paying off debts is to pay off your debt with the lowest balance first. It doesn’t matter what the interest rate is, just apply principal to the lowest credit card and get it paid off. One less monthly payment and one less debt. Not only does it help from a financial standpoint, but also a psychological standpoint. Then move on to the next lowest debt.

    • Thanks for commenting on Success With Money, Fred. Somehow I missed your comment earlier but I wanted to let you know even now how much I appreciate your participation.

      Yes, that is a a good way to do it for psychological purposes. It increases your sense of progress. That is the way Dave Ramsey has promoted for paying off debt for years.

      I did not stick with that approach myself, but I did make a list of each debt and checked them off one by one as they were paid off. It helps to keep you going when you can see the progress clearly.

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