By C.N. Staff Writer
According to a recent report by the Urban Institute, 1 in 3 Americans are in debt. At its surface the number may appear staggering, but an in depth breakdown of the report’s numbers details why. The report details that much of the average consumer’s debt is from credit card bills and medical bills, but also extends to student loans, child support payments, parking tickets, mortgage payments and even gym memberships and cell phone contracts.
The study, which analyzed the credit files of 7 million Americans, found that 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 report showed that debt is so far past due that the account has been closed and placed in collections. This typically happens after the bill hasn’t been paid for 180 days. It also means the debt has been reported to credit bureaus and can affect someone’s credit score. A senior fellow at the Urban Institute, Caroline Ratcliffe, said debt “can harm credit scores, which can tip employers’ hiring decisions, restrict access to mortgages, and even increase insurance costs.” She went on to say that debt problems can also “tip employers’ hiring decisions, or whether or not you get that apartment.”
Regionally the delinquent debt is overwhelmingly concentrated in Southern and Western states. Texas cities have a large share of their populations being reported to collection agencies and in Las Vegas, Nevada half of the city has debt in collections. For the Washington, D.C. area, 40% of the District’s residents, with a credit file, have debt in collection agencies. The average debt for D.C. residents is $65,532. The average debt in the state of Maryland is $76,583 and the average for Virginia is $74,279. Ratclifee also said that stagnant incomes are key to why some parts of the country are struggling to repay their debt.
According to the American Bankers Association, credit card debt has reached its lowest level in more than a decade. People increasingly pay off balances each month. Just 2.44 percent of card accounts are overdue by 30 days or more, versus the 15-year average of 3.82 percent.
According to the Urban Institute report, the creditor can take three courses of action: charge it off and sell it to a debt buyer, put the account into default, or seek to collect what’s owed through an in-house department or a third-party debt collector. Debt can stay on your credit report for up to 7 years even if you’ve paid off the debt. And it will lower your credit score for years – most dramatically when it first goes into collections status and then less so as time goes on, said a spokesman for the credit-score software company FICO.
There are numerous companies that focus on reducing debt. According to credit.com, there are five steps one can take to reduce their debt situations: 1. Evaluate your debt, 2. Look at your budget, 3. Make a plan, 4. Start negotiations and 5. Follow-Through your debt reductions plan.