1 in 3 U.S. Adults Have 'debt in collections'

Reply Tue 29 Jul, 2014 05:41 am
The economy is in excellent shape and the standard of living is way up:

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Reply Tue 29 Jul, 2014 08:35 am
I heard this story and would really like more clarity. Are the debts older, tied to the 2008/2009 financial collapse or are many of them newer? How much is credit card, how much mortgage, how much medical? When I see that McAllen, Texas is the highest metropolitan area, I think of medical costs and the huge migrant community there. When I see Nevada is the worst state, I think of the real estate boom and bust leaving a lot of properties in foreclosure and people walking away from their debts. I think the aggregate "1 in 3" hides a lot of detail.
Reply Tue 29 Jul, 2014 09:17 am
I don't think there is any interpretation under which this is good.
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Reply Tue 29 Jul, 2014 09:20 am
This article on the same report has a little more detail.

As a share of people's income, credit card debt has reached its lowest level in more than a decade, according to the American Bankers Association. 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.

Yet roughly the same percentage of people are still getting reported for unpaid bills, according to the Urban Institute study performed in conjunction with researchers from the Consumer Credit Research Institute. Their figures nearly match the 36.5 percent of people in collections reported by a 2004 Federal Reserve analysis.

So credit card debt is down (good) and the percentage getting reported is the same as 2004 when the economy was doing ok. That's a lot different picture than I got from the original article. It still amazes me that so many people get turned over for collections. Here is the original report. I'll try reading that in my spare time.
Reply Tue 29 Jul, 2014 09:29 am
Interesting quote from the original article

Debt in collections originates from non-payment of a bill, and includes events such as failing to make payments on an outstanding credit card balance, not paying medical or utility bills, or even failing to pay a parking ticket. Importantly, a debt that is reported as in collections can remain on a person's credit report until the debt is seven years past due. Unlike debt past due, debt identified as in collections in our data has not necessarily been verified in the past 12 months.

So if you fail to pay a parking ticket, you are part of this list for seven years? I think this really distorts this data. If I were the analyst, I would run a separate report that both cuts the time down and eliminates or significantly discounts small debts. When I think of "debt in collections", I'm thinking thousands in unpaid bills, not a forgotten parking ticket.

The more I read the original paper, the less I think of the conclusion although I don't doubt the math. From the paper, the process is debt goes past due, then after 180 days into collection. The percentage past due is around 5% of people, but somehow we get to 35% in collections? Shouldn't we have a lot more past due than in collection? The data also doesn't include things like pawn shops where you might expect a high default rate. It also doesn't make sense that Americans are getting their credit card spending under control (an easy source of unsecured debt) but are seeing a high default rate. Wouldn't someone borrow on their credit cards to make the bills if they had to? Something just doesn't close here.
Reply Tue 29 Jul, 2014 09:47 am
I share Engineer's skepticism.
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Reply Tue 29 Jul, 2014 10:54 am
I would like to see a similar study of changes in corporate debt.
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