Over a third of Americans have debts and unpaid bills that have been reported to debt collection agencies, according to a new report from the Urban Institute. They are disproportionately concentrated in the South – and in Texas in particular.
In order to be reported to a debt collection agency, people have to be so far behind on non-mortgage bills – such as credit card bills, utility bills, medical bills and child support payments – that the account is closed and given to a collection agency to track down.
Texas cities have some of the largest shares of their populations that have been reported to debt collection agencies. In McAllen, over half of the population (52 percent) have been reported to a collection agency – a larger share than any of the other 100 metro areas in the study. Dallas, El Paso, Houston and San Antonio all have almost half of their populations in collections, with each city’s share coming in at around 44 percent.
On the somewhat bright side, the amount of debt in collections is relatively low in the South compared to some other parts of the country. In most Texas cities the average amount of debt in collections is between $4,000 and $5,000. While it’s certainly not a significant (and perhaps even debilitating) amount, in some cities the average debt is over $12,000.
The problem with debt is not just that it’s difficult to pay it off, but that even after paying it off, it sticks with you – and can stay on credit reports for up to seven years. According to the Urban Institute,
“In addition to creating difficulties today, delinquent debt can lower credit scores and result in serious future consequences. Credit report information is used to determine eligibility for jobs, access to rental housing and mortgages, insurance premiums, and access to (and the price of) credit in general. High levels of delinquent debt and its associated consequences, such as limited access to traditional credit, can harm both families and the communities in which they live.”
The study does not take into account debt from loans outside of the financial mainstream, like payday loans or pawn shops, an all too common source of temporary cash for low-income people. It also does not take into account loans from friends and family. Without these, the study under-represents the amount of debt that especially low-income people actually have – meaning that, while alarming, this data does not even paint a full picture of indebtedness.