35% of American Adults Have Debt 'In Collections' 570
New submitter meeotch writes: According to a new study by the Urban Institute, 35% of U.S. adults with a credit history (91% of the adult population of the U.S.) have debt "in collections" — a status generally not acquired until payments are at least 180 days past due. Debt problems seem to be worse in the South, with states hovering in the 40%+ range, while the Northeast has it better, at less than 30%. The study's authors claim their findings actually underrepresent low-income consumers, because "adults without a credit file are more likely to be financially disadvantaged."
Oddly, only 5% of adults have debt 30-180 days past due. This latter fact is partially accounted for by the fact that a broader range of debt can enter "in collections" status than "past due" status (e.g. parking tickets)... But also perhaps demonstrates that as one falls far enough along the debt spiral, escape becomes impossible. Particularly in the case of high-interest debt such as credit cards — the issuers of which cluster in states such as South Dakota, following a 1978 Supreme Court ruling that found that states' usury laws did not apply to banks headquartered in other states.
Even taking into account the folks who lost a parking ticket under their passenger seat, 35% is a pretty shocking number. Anyone have other theories why this number is so much higher than the 5% of people who are just "late"? How about some napkin math on the debt spiral?
Oddly, only 5% of adults have debt 30-180 days past due. This latter fact is partially accounted for by the fact that a broader range of debt can enter "in collections" status than "past due" status (e.g. parking tickets)... But also perhaps demonstrates that as one falls far enough along the debt spiral, escape becomes impossible. Particularly in the case of high-interest debt such as credit cards — the issuers of which cluster in states such as South Dakota, following a 1978 Supreme Court ruling that found that states' usury laws did not apply to banks headquartered in other states.
Even taking into account the folks who lost a parking ticket under their passenger seat, 35% is a pretty shocking number. Anyone have other theories why this number is so much higher than the 5% of people who are just "late"? How about some napkin math on the debt spiral?
Re:So! The game is rigged! (Score:5, Informative)
In order to get approved for debt, you must have debt.
No, to get approved for debt you need one of two things:
1. A credit history. That's not necessarily debt, it is a history of handling small debts that you've paid off.
2. Belong to a demographic that the credit companies are chasing.
When I was in college, the stores were deluging me with offers of credit cards because of my age/college while the credit union followed rule 1 and repeatedly denied me a credit card. In recent years, the largest flood of credit card offers were when I had no debt at all, but had a paid-off car loan.
It's a SCAM! A scheme to make sure that you are constantly in debt,
Nobody can force you to go into debt.
Re:Not surprised. (Score:4, Informative)
I don't know why anyone has more than a couple quick interactions with a debt collector.
A flowchart for 'ya.
http://creditboards.com/forums... [creditboards.com]
In the South (Score:0, Informative)
Where republican values prevail.
Is it a legitimate collection? (Score:5, Informative)
The Michigan teachers union sics bill collector on former members after they legally opted out of the union:
http://poorrichardsnews.com/po... [poorrichardsnews.com]
Re:Not surprised. (Score:3, Informative)
Nobody will prove to me that I actually owe this money.
Do a little googling people... first of all, it is your legal right to have collection agencies only contact you in writing, but you have to notify them to do so. If they still call you, they're legally liable. Then, you can demand that they prove you own the debt. If they cannot and still continue to harass you, you can sue. Heck I'd sue regardless, in small court, even if the debt was legitimate, chances are they don't have the paperwork in order or they won't bother to show up.
Re:Past due not reported by companies (Score:3, Informative)
Yeah. Collections usually get sold off to the highest bidder, and there may be reporting requirements which make that data more readily available.
"Past due" is meaningless. Anybody who has run a business knows that nobody pays bills on time, neither yourself nor clients or customers. In fact, modern business relies upon it. Net-60 (due date + 60 days) is what everybody expects. Any "notice" that says something is 30-days past due gets summarily thrown in the garbage because I'm usually waiting on a check to come in from somebody else and damned if I'm going to float the cash unless I really have to.
Thus anybody who reports a bill as past due before Net-60 or Net-90 has expired is just asking for trouble, because everybody will be like "WTF!?"
Credit cards companies aren't so lenient, but then they're floating cold, hard cash which loses value by the hour, not a service or good that can be returned and resold at a markup. OTOH, they're charging a fat 3% transaction fee. You can actually get 10 year mortgages for 3%*, so they're making out like a bandit anyhow.
* If you're rich enough, at least. The bank told me I needed $1m+ in assets to get a rate that low. But in any event they still make money on a 3%fixed rate 10-year loan.
US centric discussion (Score:4, Informative)
The debt discussion quickly moved to a health insurance discussion, as that is clearly one of the major contributors of this issue.
Slashdot has always been a mostly US centric site, but also has a significant world wide group.
As a European reading this discussion, but i recon it is so for Canadians and some larger parts of Asia as well: I'm laughing my ass off!
Oh man, you guys have seriously fu****ed up your system.
All this spastic anti-socialism, american dream, Obamacare and your corporate controlled democracy have made you end up with this monster.
Believe me, our systems are also far from perfect, but no where near the level of idiocy described here.
for me, 500 $ max own risk, rest 100% insured. no limit. 98% of the population is insured. regardless of income, age or job. I worry over other stuff. Not my health bill.
Re:The American Dream (Score:4, Informative)
If you're making minimum wage and trying to live in your own apartment without roommates or gf/bf, you are an idiot. I can't even think of anyone I've known recently that's been naive enough to try to make that work. Two roommates and scratching for a job above minimum wage is the most common formula I see people use to build up momentum for independence. At that point even at minimum wage everyone can start accumulating some savings fairly quickly.
That usually evolves into just gf/bf small apartments for awhile, then on to a larger apartment, or renting/buying a starter house, as both find better jobs.
Also your 1300/mo apartment cost does vary from place to place, it's quite a bit cheaper here, $650 easily gets you 2 bedroom if you're not too picky, and minimum wage isn't lower here. If you're just getting started and on minimum wage, where the cost of living is high, roommates or moving to lower cost-of-living is essentail. None of this is difficult if you just use your head and don't get stupid or unreasonable.
Why the 35%? (Score:4, Informative)
I skimmed a lot of comments and didn't see one directly addressing the question posed in the summary.
Basically, 35% of Americans have debts in collection status because it's easy to have an account go to collections and then linger there forever. You can imagine people's "debt responsiveness" as being exponentially bound to the time since the last payment. A debt that recently had a payment made is almost certain to have its next payment made. A debt that's a few months late has a decent chance of getting a payment made soon. A debt that is 6 months (or more) late has a very low chance of ever being paid again. This is why debt collectors buy/pursue old debts. The original creditor will likely accept pennies on the dollar just to get something out of it, while the collector wants to obtain the whole amount. If they can even get half, they come out way ahead. It's a profitable business.
I used to work in this industry (wrote software) so I could tell you some things about it.