If you’ve been on the receiving end of an unsolicited phone call from a debt collector, you’re far from alone.
More than one-third of Americans (35%) had debt in collections in 2013, putting their credit and job prospects at risk, according to a new study by the Urban Institute, which analyzed credit reporting data for more than 7 million consumers. The report is based on data from TransUnion, one of the three major credit reporting agencies.
In order to be released to debt collectors, unpaid balances have to be more than 180 days past due. Of the 35% of Americans with non-mortgage debt in collections, the average amount owed was $5,178, according to the report. Although researchers weren’t able to break down the types of debt by category, they can include things like credit card balances, student loan debt, medical or utility bills, parking tickets and even gym membership fees.
Delinquent debts are prevalent across the country. Overall debt on things like credit cards, student loans and auto loans increased by $129 billion -- or 1.1% -- in the first quarter of 2014 compared to the previous quarter, according to the Federal Reserve Bank of New York.
People from certain states and regions are more likely to wind up on debt collectors’ speed dial than others. In Nevada, nearly half (47%) of consumers had seriously delinquent debt, according to the report, with an average balance of $7,198, the highest of any state. At least 40% of residents in a dozen other states have debt in collections, 11 of which are in the South. States with the fewest number of residents with debts in collections were mostly in the Midwest, including states like North Dakota, which had the lowest rate (19.2%), followed by Minnesota (19.8%) and South Dakota (20.8%).
“Debt in collections is pervasive and threads through nearly all communities,” says Caroline Ratcliffe, a senior fellow at the Urban Institute. “This is important because delinquent debt can harm credit scores, limit access to credit and [make credit] more expensive.”'
The long-term effects of debt can be crippling. Past due debts not only make credit more expensive and harder for consumers to access, but it can weaken their chances at getting a job as well. Some employers routinely run background and credit report checks on prospective job candidates.
Dealing with debt collectors
As if the stress of unpaid bills weren’t difficult enough to endure, communicating with debt collectors, who can often be pushy and aggressive, is no cake walk.
Consumers filed 204,000 complaints against debt collectors with the Federal Trade Commission in 2013, up from 199,000 the year prior and the highest level since the agency began keeping track in 1999. The most common complaint filed concerned debt collectors that allegedly lied about the amounts a consumer owed and the nature of their delinquency, followed by firms that called too often.
“This is a major consumer protection problem,” says Chris Koegel, assistant director of financial practices at the FTC. “We devote a significant amount of our resources to trying to clean up the practices in this industry.”
Part of the challenge of reining in unscrupulous debt collectors is that if a borrower is embarrassed or feels guilty about having a delinquent debt, he or she may take abuse from collectors without ever reporting it. Some people have even been tricked into believing they owe debts that don’t exist, an increasingly common ploy the FTC calls “phantom debt collecting.” In the scam, a collections agency will call a consumer, inform them of a nonexistent debt and bully them into making payments, often threatening arrest or other types of legal action.
North Carolina resident Frances Marshall endured more than two years’ worth of harassing calls from debt collectors, according to reports this month, despite the fact that she never had any debt to begin with.
The FTC has a handy guide on what to do when debt collectors contact you, including a full list of your rights under the Fair Debt Collection Practices Act. If you’re a target, you can protect yourself by understanding what debt collectors are and are not allowed to do.
For example, debt collectors aren’t allowed to phone you after 9 p.m. unless you expressly tell them so. They also aren’t allowed to call you at work if you tell them not to. And no, they can’t actually throw you in jail, either.
By far the biggest myth about calls and letters from debt collectors is that you have to put up with them at all. Once you’ve been alerted about your past due debt, you can ask the collector to stop contacting you, even if you haven’t paid your balance.
You just have to do it in writing. The CFPB makes that easy, with a list of sample letters you can use to get collectors off your back. And you should keep a log of your interactions with collectors, including copies of any letters and emails, and notes from phone calls.
Of course, none of this will erase your debt. Once debt goes into collections, it can stay on your credit report anywhere from five to seven years, limiting your chances of getting approved for new credit, not to mention the heavy blow it will deal your credit score. You can improve your odds at getting approved for loans by settling your debts, but it’s next to impossible to get them removed once they show up on you credit report.
You can dispute debts on your credit report and get them removed if you think they are erroneous. Check your credit report at annualcreditreport.com at least once a year to make sure you don’t have any unwarranted collections notices. Then file a dispute using each credit bureau’s dispute submission form.
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