Key Takeaways
- An analysis from the think tank Urban Institute found that nearly one in four Americans with a credit history have debt in collections.
- Those with debt in collections owe a median balance of $2,913.
- Debt burdens vary sharply by location.
Why does getting ahead feel so out of reach? A new analysis from the Urban Institute offers a look at the financial strain Americans are facing.
The report, which drew from U.S. Census Bureau data, revealed that 23.5% of Americans with a credit history have debt in collections. They owe a median amount of $2,913.
As grocery bills and other essentials take a bigger toll on household budgets, some Americans are relying on credit cards to bridge the gap. However, steep interest charges can turn that short-term relief into debt that is difficult to pay off, even for borrowers who are making payments.
Susan Cannon described that cycle to Business Insider earlier this year. The 73-year-old owes nearly $40,000 across 19 credit cards, with interest rates ranging from roughly 12% to 35%. She lives in a mobile home in rural Texas. Despite paying more than the minimum balance on her credit cards, she struggles to reduce her balances while continuing to charge necessities such as groceries and gas to her credit cards.
“I can’t get the balance down because I am still having to use credit cards at the end of the month to get groceries and gas,” Cannon told the publication. “I pay my bills, but because of the interest rates, it keeps going up — I feel like I’m being gouged.”
Despite Cannon’s best attempts to build a savings account, her monthly payments are all going towards interest payments on her credit cards.
“I just cannot get ahead,” Cannon told Business Insider.
Contributors to overdue bills
Where Americans live can make a noticeable difference in how heavily overdue their bills are. For example, in rural Jim Hogg County in South Texas, more than half of residents with a credit history have debt in collections, according to the report. Nationwide, the share is 23.5%, making the county’s rate more than twice the national figure.
How quickly an unpaid bill reaches collections depends on the type of debt. Credit card accounts typically enter collections four to six months after a missed payment, while unpaid medical bills generally take three to six months. The balances also differ: The analysis put the median delinquent credit card debt at $680, compared with $1,492 for medical debt.
Student loans follow a different path, with the rules varying between federal and private lenders. Federal loans generally fall into default after 270 days without payment. Borrowers can then pursue options such as loan rehabilitation to resolve the default and restore their loans to good standing.
The New York Federal Reserve determined that Americans collectively owe $18.8 trillion in debt as of the second quarter of the year.
Key Takeaways
- An analysis from the think tank Urban Institute found that nearly one in four Americans with a credit history have debt in collections.
- Those with debt in collections owe a median balance of $2,913.
- Debt burdens vary sharply by location.
Why does getting ahead feel so out of reach? A new analysis from the Urban Institute offers a look at the financial strain Americans are facing.
The report, which drew from U.S. Census Bureau data, revealed that 23.5% of Americans with a credit history have debt in collections. They owe a median amount of $2,913.
As grocery bills and other essentials take a bigger toll on household budgets, some Americans are relying on credit cards to bridge the gap. However, steep interest charges can turn that short-term relief into debt that is difficult to pay off, even for borrowers who are making payments.