3 Scary Facts About Delinquent Debt and What You Should Do

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Look at most economic reports, and you'll see numerous signs that the U.S. economy has recovered from the worst of the financial crisis in 2008 and early 2009. Yet more than five years after the stock market hit bottom and the recovery technically began, delinquent debt continues to be a huge problem for millions of Americans.

A recent Urban Institute report revealed some frightening facts about the state of U.S. consumers and the debt they owe. Not only are there far more instances of problems with people's credit than most believed, but many people don't even realize they have credit trouble at all. Here are three of the most disturbing revelations.

1. About 77 Million Americans Have Debt Reported in Collections

The report found that about 35 percent of all adults who have a credit file, or roughly 77 million, have debt in collections on their credit reports. Even more shockingly, that number excludes delinquent mortgage debt, meaning that even when you look only at credit cards, medical bills, utility bills and other common types of consumer debt, a huge swath of the American public have problems with their credit histories. The study found that the average debt outstanding was almost $5,200, although only half of those included in the survey had debt levels above $1,350.

2. Low-Income Regions of the U.S. Suffered the Most

The report broke down delinquent debt statistics by region of the country, and its findings showed large disparities. In general, the areas with the highest household incomes -- including New England and the Mid-Atlantic -- had the lowest rate of debt in collections, with New England coming in just above 25 percent.

By contrast, lower-income parts of the country had greater problems. Specifically, the Deep South had collections rates above 40 percent, and past-due debt levels were also markedly higher than in other regions. When the institute looked more closely at the data, it found many extremely high concentrations of past-due debt, with almost two in five of them in Louisiana or Texas

3. You Might Not Even Know You Have Debt in Collections

When most people think of collections agencies, they imagine barrages of phone calls and harassing tactics designed to make them pay up by any means necessary. But surprisingly, the report found that many people never find out about having debt in collections until they look at a copy of their credit report. Even though that indicates that creditors aren't actively seeking repayment, the blemish can still adversely affect consumers in other ways, specifically when they look for new credit, seek to rent an apartment or even apply for employment.

What You Can Do

What's particularly disturbing is that these facts come in the context of huge improvements in consumer debt. According to the Federal Reserve, consumer debt fell by more than 11 percent from 2009 to 2013, with a drop of $1.45 trillion to $11.23 trillion as of September 2013.

Fortunately, there are several things you can do to resolve issues with debt in collections:

  • The first and most important step is to get a copy of your credit report. AnnualCreditReport.com is the government-approved website to obtain free credit reports on an annual basis. Checking your report will not only tell you whether you have debt in collections and how to contact creditors claiming that you owe them money.

  • If the debt is in error, tell the credit-reporting bureau to fix it. The Federal Trade Commission has a good sample letter to use as a guide for disputing credit-report errors. Also contact the creditor to tell them to remove the item from your report.

  • If you do owe money, then your options are more limited. But in some cases, collections agencies will accept partial payment or installment plans that the creditors themselves wouldn't. Before you pay, be absolutely certain that both the original debt and the collection agency are legitimate.

Even with the improving economy, delinquent debt continues to be a problem. By knowing what's on your credit report and dealing with it proactively, you can avoid becoming another statistic.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

Originally published