The share of Americans with debt in collections is at historic lows
The share of Americans who have debt in collections is hovering at a historic low, according to data from the New York Fed out Tuesday.
Why it matters: It's an encouraging sign that even as there are some signals of weakness in household finances, like rising credit card delinquencies, people are paying their bills.
The big picture: Having debt in collection — with collectors calling and sometimes harassing you — can be a scary experience, with huge financial repercussions.
- When those debts show up in your credit score, you're less able to borrow money, rent a home, or even get a job in some cases. You're more at risk for bankruptcy.
Caveats: This data only includes collections debt that shows up on credit reports.
- And this year's data reflects a change in the way medical debts are reported to credit agencies.
Zoom in: Beginning in 2023, medical bills under $500 — which previously made up about two-thirds of the collections on reports — were no longer reported to credit bureaus. (Go deeper)
- The average collection amount per person in the third quarter of this year was over $1,600 — compared to around $1,200 last year.
Of note: The student loan moratorium also kept lots of bills out of collections. And even though those payments have resumed, borrowers have 12 months before unpaid bills show up on credit reports.
What's next: The Consumer Financial Protection Bureau is pushing to remove all medical debt from credit reports, arguing that a failure to pay a medical bill — often incurred during a stressful, confusing, even life-or-death moment — doesn't tell you a lot about a person's creditworthiness.
The bottom line: Despite the gloom and doom in consumer sentiment, people are keeping up with their bills better than you might think, said Ted Rossman, a senior industry analyst at Bankrate.com.