35 Percent Of Americans With Credit Have Debt In Collection

The Urban Institute released a report this week titled Delinquent Debt In America, which has received widespread publicity due to a startling statistic.

They report that 35% of Americans with credit have debt in collection. This means you must actually have credit (opened credit card, auto loan, or other accounts), and it does not include mortgage debt. The summary concludes:

Financial distress is a daily challenge for millions of American consumers. Nearly 1 2 million adults — 5.3 percent of Americans with a credit file — have non-mortgage debt reported past due, and they need to pay $2,258 on average to become current on that debt. 

Further, an alarming 77 million Americans — 35 percent of adults with credit files — have debt in collections reported in their credit files, with an average debt amount of nearly $5,178. Debt reported past due, and in particular reported debt in collections, is more concentrated in the South. 

In addition to creating difficulties today, delinquent debt can lower credit scores and result in serious future consequences. Credit scores are used to determine eligibility for jobs, access to rental housing and mortgages, insurance premiums, and access to (and the price of) credit in general (Federal Trade Commission 2013; Traub 2013). 

High levels of delinquent debt and its associated consequences, such as limited access to traditional credit, can harm both families and the communities in which they live. This brief contributes to our understanding of financial distress in America by exploring the spatial patterns of delinquent debt in the United States. Future work will explore the drivers of financial distress and those factors influencing its spatial patterns.

While certain sectors of the American recovery are humming due to the Fed's liquidity injections, the larger economy continues to choke on consumer debt coupled with stagnant wages.