One third of Americans have debt in collections, study finds. Cause for concern?

Thirty-five percent of Americans with credit reports have debt in collections, according to the Urban Institute. The debt load may seem alarming, but it hasn't changed much in a decade. 

The collections office is coming for you, America. 

Thirty-five percent of Americans with credit reports have debt in collections, although 20 percent of Americans with credit files do not carry any recorded debt, the Urban Institute has found.

The Urban Institute released two studies on debt on Tuesday – one focuses on delinquent debt in the US, while the other looks at debt in the US overall. Both studies highlight that debt continues to be a problem in the US, with the national average debt load at $53,850.

About 77 million Americans have debt in collections – which means they have debt that is overdue to the point where collection agencies have to handle it or creditors are taking legal action. The average amount of debt in collections is $5,200, which includes debt from credit card bills, medical bills, utility bills, and even parking tickets. 

Each of the 50 US states have at least one county where residents have more mortgage debt than income. Delinquent debt is particularly common in Southern states. But it is not limited to the South – Nevada, one of the states where the housing crisis hit the hardest, has 47 percent of its residents with reported debt in collections. The District of Columbia and 12 other states have more than 40 percent of its residents in the same category.

Although the number is alarming, both studies don’t show the complete picture, says Greg McBride, chief analyst for Bankrate.com.

Many Americans have items in collections that are unknown to them, such as a medical bill that they thought the insurance company paid for, Mr. McBride says in a phone interview. Sometimes people have errors on their credit reports, he adds. For example, an item for someone with a similar name can show up on someone else’s credit report as debt in collection.

However, that should not deter Americans from taking credit reports seriously, he says.

“It is vitally important that people regularly pull copies of their credit reports,” McBride says. “I can’t tell you how many times I have seen consumers who otherwise have very strong credit being blindsided by the fact that they have a collection item listed on their credit report.”

Thirty-five percent seems like a high figure, but it's  also a relatively static one. The Urban Institute's results are almost identical to results from the Federal Reserve’s analysis of credit bureau data in 2004, which found that 36.5 percent of people with credit reports had debt in collections reported in their file. McBride says he does not see this changing in the next 10 years, either.

To insure Americans have less debt in collections and avoid incorrect financial information, McBride suggests regularly requesting credit reports, which the Fair Credit Reporting Act has ensured are free and easily accessible to Americans. 

“That is a best line of defense against incorrect information on your credit report,” he adds.

To request a free credit report, visit annualcreditreport.com.