America Saves Week

Debt collectors go after 77 million Americans

When ABC News and the Washington Post tout headlines with the word “debt” in them, the topic is usually the federal government’s debt. Last week, CNN and USA Today and every other major news outlet in the nation were talking about another kind of debt.

This time, it was personal.

These news outlets were citing the same disturbing study from the Urban Institute, a nonpartisan think tank in Washington, D.C., that concluded…

Roughly 77 million Americans, or 35 percent of adults with a credit file, have a report of debt in collections. These adults owe an average of $5,178.

These numbers mean that one out of every three American adults with a credit history is more than 180 days past due on their debts — which includes everything except mortgages. That ranges from big-ticket debt like car loans and credit card balances to minor items like parking tickets and library fines.

The news was big and shocking enough that it became political, with Arab news outlet Al Jazeera covering it and the conservative Daily Caller obliquely blaming President Obama.

Here are my conclusions from the news, from the perspective of a debt expert…

1.  Student loan debt is the next big news

The Urban Institute’s initial report was thorough and too long to sum up here. However, the institute acknowledges it has yet to break down the debt by category and will do so in a future report. When it does, my hunch is: Student loans will explain a huge chunk of that delinquent debt.

My hunch was borne out by an unheralded paragraph buried in the middle of a McClatchy report last week…

The Federal Reserve issues a quarterly report on delinquency rates on loans by commercial banks, and the latest, from January through March, shows 2.31 percent of credit card debt is delinquent. That’s lower than what the Urban Institute study shows and suggests that credit cards aren’t the whole story.

With student loan debt at $1.2 trillion and higher than credit card debt, it only makes sense that this will be the next big report from the Urban Institute.

Lower your credit card payments now

2. Many don’t know they’re in collections

I’ve been counseling debt-stricken Americans for more than two decades, and they usually have two traits in common.

First, they’re strong people who are going against the flow — denying the instant gratification they’re bombarded with in the media because they want to do right by their families.

Second, they often have no idea how bad their finances really are. Seldom do they know their credit score and how it’s calculated. Even in the best of times, many people don’t know if their credit reports have black marks on them because they fail to check themselves or use a credit monitoring service.

So I suspect many — maybe approaching half — of these 77 million Americans have no clue they have a debt that’s so late, it’s been referred to a debt collector. The only way some people realize it is when debt collectors call them — and sometimes harass them.

3. The solution is boring

The Urban Institute put solid research toward a big problem, but the solution isn’t nearly as dramatic. It won’t make for breathless headlines. (My favorite: Deadbeat Nation from ETF Daily News.)

Before this report made mainstream news, financial experts like myself knew bad news like this was coming. It may even get worse before it gets better. But the solutions are already in place. They have been for years.

Americans have the tools to clean up their own debts as best they can, and they have access to reputable experts who offer debt solutions for them to choose from.

For all the doom and gloom that spread around the Web last week, I’ll make a bold claim: Most of these delinquent debts could be wiped off the books in five years if those affected knew they had help standing by. That’s why Debt.com exists.

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