More than one in three Americans are living with debt in collections, according to a newly released study from the Urban Institute. The credit of 77 million Americans could be severely impacted, preventing them from reaching their financial goals.
How much debt is already in collections?
The national average of debt reported in collections is $5,187; held by 35% of the population with credit files. This debt does not include delinquent mortgage payments, but is instead made up of debt like unpaid medical bills, overdue credit card balances and even outstanding utility statements. Not as obvious to some people, debts ranging from overdue gym memberships to unpaid mobile phone can also end up with a collection agency, adding to the debts.
Delinquent debt vs. Debt in collections
Delinquent debt is any debt reported to a credit bureau as past due, however it usually takes about 180 days for a past due debt to end up in the hands of bill collectors. While this can vary from creditor to creditor, the time it takes for an outstanding bill to end up reported to a collections agency can pass quickly.
According to Ask Experian, states may regulate the time when collections agencies can start pursuing unpaid debts but there is no time limit on how long an agency can request payment. These collections can be reported to the credit bureau and appear on your credit report for up to seven years from the original delinquency date the account became past due.
What can you do if you have delinquent debt?
According to the data, you're not alone. If you're falling behind on payments, it may help you to start with a better understanding of how credit plays a role in your financial life. Here are some things you can do to work on getting back on track:
- Check your credit report — make sure that everything is accurate, and that no information is unfamiliar to you. If you see information that you can't confirm, contact the credit bureau that provided your report to share your findings and investigate further.
- Make a game plan — by viewing your report regularly, you can start to get an idea of how you spend and how you can improve your financial health. Making sure you always pay your bills on time is one of the best ways to keep your credit score healthy.
- Create a budget — committing to spend within your means shows that you're using credit responsibly, and will help you stay on track over time. Factor in your regular expenses, and leave a little extra in an emergency fund, too.
Even if you're currently in debt, there can be a way back to achieving your financial goals. Keeping your credit behavior smart and using credit responsibly can help steer you back to calmer waters, which can stop your debts from mounting and help your credit scores stay healthy.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on September 22, 2016, and has been updated.