Have a few blemishes on your credit report? You're not alone. According to a new study from the Urban Institute, over one-third of Americans had debt in collections in 2013. The debts averaged $5,178 and include debt like medical bills, credit card balances, student loans, parking tickets and utility bills.
In a very real sense, the phenomenon is making the US a debtor nation. People all over the country have debt in collections. However, some areas have higher concentrations of debt than others. Nevada residents have the highest rate of debt in collections, with 47% of residents with delinquent debt and an averaged owed of $7,198. Eleven of the twelve states where 40% of more of the residents have debt are in the South.
Once a debt goes into collections, it can remain on a person's credit report for up to seven years. And, even after a debt in collections is paid off, it can still reduce a credit score for a period of time. These delinquent debts can have a serious effect on people's credit, job prospects and more.
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People with low credit scores are often considered bad candidates for certain jobs. Bad credit can keep you, for instance, from getting a security clearance, which is necessary for certain companies that work with the federal government. Not only can delinquent debts keep someone from qualifying for a mortgage; they can cause apartment rental applications to be turned down, as well. When you have bad credit, you can pay more for everything from insurance to renting a car. The reduced opportunities and higher costs can keep people from the financial stability that would, in the future, reduce their chances of winding up in debt.
Dealing with Debt Collectors
Calls from debt collectors can be embarrassing and intimidating. But, as a consumer, you have rights and protections. If you are contacted by a debt collector:
• Always ask for communication about the debt in writing. This gives you time to research the debt and verify whether it is valid.
• Check your credit report. If you have been reported for debts that you do not owe, you can have those records removed so they do not affect your credit score.
• Know that you can negotiate debt payments. In some cases, debt collectors will be willing to accept a lower amount if you can pay off the debt all at once. You can also ask for payments.
• Do not hesitate to report debt collectors who harass you. Actions that legally qualify as harassment include calling outside of approved hours, calling you at work after you have asked them to stop and seeking unjustified amounts. Both your state's Attorney General's office and the FTC can help.