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Study: 35 percent in US facing debt collectors

A shopper used a credit card at a New York business.


A shopper used a credit card at a New York business.

WASHINGTON — More than 35 percent of Americans have debts and unpaid bills that have been reported to collection agencies, according to a study released Tuesday by the Urban Institute.

These consumers fall behind on credit cards, hospital bills, mortgages, auto loans, or student debt. Even past-due gym membership fees or cellphone contracts can end up with a collection agency, hurting credit scores, said Caroline Ratcliffe, a senior fellow at the Washington-based think tank.

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‘‘Roughly every third person you pass on the street is going to have debt in collections,’’ Ratcliffe said. ‘‘It can tip employers’ hiring decisions, or whether or not you get that apartment.’’

The study found 35.1 percent of people with credit records had been reported to collections for debt that averaged $5,178, based on September 2013 records. The study points to a disturbing trend: The share of Americans in collections has remained relatively constant, even as the country has whittled down the size of its credit card debt since the official end of the Great Recession in mid-2009.

As a share of income, credit card debt is at its lowest level in more than a decade, according to the American Bankers Association. Just 2.44 percent of card accounts are overdue 30 days or more, versus the 15-year average of 3.82 percent.

Yet roughly the same percentage of people are still getting reported for unpaid bills, according to the study, done in conjunction with the Consumer Credit Research Institute. Their figures nearly match the 36.5 percent of people in collections reported by a 2004 Federal Reserve analysis.

Health care-related bills account for 37.9 percent of the debts collected, according to a 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.

Delinquent debt is overwhelmingly concentrated in the South and West. Texas cities have a large share of their populations being reported to collection agencies, such as Dallas (44.3 percent), El Paso (44.4 percent), Houston (43.7 percent), and San Antonio (44.5 percent).

Almost half of Las Vegas residents— many of whom bore the brunt of the housing bust that sparked the recession— have debt in collections.

A few major factors appear to be driving the delinquencies, said Eric Salazar, Texas and Florida manager for the credit counseling agency GreenPath. First, many of these workers have low-paying jobs in construction and services, in addition to minimal education on finances. Secondly, these states are home to retirees who live on fixed incomes and may struggle to pay medical bills, he said.

Just 20.1 percent of Minneapolis residents have debts in collection. Boston and San Jose, Calif.,, are similarly low.

Only 20 percent of Americans with credit records have any debt at all. Yet high debt levels don’t always lead to more delinquencies, since the debt is largely from mortgages.

Ratcliffe said stagnant incomes are a key factor in the past five years. Wages have barely kept up with inflation, according to Labor Department figures. And Wells Fargo found that after-tax income fell for the bottom 20 percent in the same period.

 Correction: Because of incorrect information from the Associated Press, this story gave an incorrect percentage for those with no debt on file. A study by the Urban Institute found that 20 percent of Americans with credit records have no debt on file.

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