The United States of delinquent debt
America is the land of life, liberty and the pursuit of happiness, but a fourth item could be appended to that list: It's also the land of delinquent debt.
More than one-third of Americans have debt in collections, meaning that they've fallen significantly behind in paying their bills, according to a new study from the Urban Institute, a nonpartisan think tank.
The "alarming" number is a signal that many Americans are in financial distress, given that it means those citizens have failed to make payments on bills in a timely fashion, the study notes. But not every region of the U.S. is suffering equally, with the report finding that residents in the South are more likely to have a debt in collections, as well as Nevada, where residents were hard-hit by the housing crash.
"Financial distress is a daily challenge for millions of American consumers," the study notes. "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 median American household income stood at $53,891 in June, according to Sentier Research, which analyzed data from the Current Population Survey. While the economy is improving, with the unemployment rate declining, many American workers have failed to improve their wages. Median household income has declined from a peak of more than $56,000 in 1999.
Delinquent debt can come about from skipping out on a credit card payment, paying medical bills, or even a parking ticket, with the study finding that the average amount owed by people with a debt in collections is $5,178.
While some debt, such as mortgages, are productive -- helping to build equity and assets -- consumer debt can lead to problems, especially when consumers fall behind. Failing to meet payments on consumer debt, such as credit cards, may create a "vicious debt cycle."
About one out of 20 people are at least 30 days late paying a credit card bill or non-mortgage account, such as a student loan. Such past-due bills are also indications of "looming problems," and could lead to snowballing financial woes, especially for those who already have debt in collections.
The worst-off region is what the report calls the West South Central area, or Arkansas, Louisiana, Oklahoma, and Texas. Almost 44 percent of residents in those states have debts in collection, the study found. The runner-up is the East South Central area -- Alabama, Kentucky, Mississippi, and Tennessee -- where 41.3 percent of residents are hearing from debt collectors.
Both of those regions also rank as having the lowest average household incomes in the country. Residents in East South Central have an average household income of $57,511, while West South Central households have average income of $65,843.
New Englanders are the least likely to have a debt in collections, at 25.3 percent. They also had the highest average household income, at $86,242.
A debt in collections is one that's more than 180 days overdue. That's the point at which either in-house or third-party debt collectors attempt to collect, while the debt can remain on a person's credit report for seven years. Some consumers only become aware of the problem when they look at their credit report, the study notes.
The percentage of Americans with debts in collections is little changed from a 2004 analysis, with the study noting that it sought to add to understanding of overdue debt by considering geographical differences.