While many financial advisors focus on the "assets" column of clients' personal balance sheets, fewer spend time helping clients manage the "liabilities" column. Some advisors think affluent households don't have debt problems warranting professional attention. Others lack professional-level knowledge in credit management.
A new report published by the Urban Institutecan help to open advisors' eyes and expand their services in this area. Titled Delinquent Debt in America, it is available in PDF format here: www.urban.org/UploadedPDF/413191-Delinquent-Debt-in-America.pdf
Using 2013 credit bureau data from TransUnion, the Urban Institute has documented that "past due" debt (delinquent from 1 to 180 days) is a modest national problem. In September of 2013, 5.3% of U.S. consumers with credit files had debt reported as past due. However, "debt in collection," more than 180 days past due, is a staggering national problem, with 35.1% of U.S. credit files in this category. Although most of this debt has been referred to collection agencies, in many cases debts are too small for the agencies to have contacted consumers.
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The report observes: "Compared with debt past due, a broader set of debts can enter collection status (e.g., medical bills, parking tickets, membership fees), and they can remain on a credit report for up to seven years." While debt-in-collection rates are highest in low-income states, rates are above-average in some affluent areas, where household incomes exceed the national average ($72,254).
For example: In the District of Columbia, with average household income of $103,652, 41.8% of credit files have debt in collection. In Maryland ($94,160), 36.8% have debt in collection.
The average amount of debt in collection per file is not large – just $5,178. As the report underscored: "Consumers themselves may not realize they have debt in collection. Some consumers report becoming aware of this debt only when they review their credit report."
How can you help? Suggest that your clients: 1) review current credit reports to identify any amounts in collection; and 2) try to pay off or settle those amounts, if possible . Any such payments or settlements should be reported by collection agencies to the credit bureaus within 30 days.
The Fair Credit Reporting Act (FCRA) requires each of the three national credit bureaus to provide consumers a free copy of their credit report, on request, once per 12 months. To request a copy, consumers can visit: www.annualcreditreport.com
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