If paying your bills on time is a sign of financial responsibility, millions of Americans are proving they aren’t doing a great job of managing their money. More than one-third of people in the United States – or 77 million individuals — have debt in collections, according to a 2014 study by the Urban Institute. The average amount owed was $5,178.
Those bad debts, which are more than six months past due and have been handed over to a collections agency, can come from unpaid medical bills, utility bills, and even parking tickets and membership fees, noted the Urban Institute. (The study didn’t factor in late mortgage payments, but data from the Federal Reserve shows that about 2% of mortgages are at least 90 days past due.) In addition, 5% of people had bills that were at least 30 days late but which hadn’t yet gone to collections, and they owe an average of $2,258.
The study didn’t look at why people weren’t paying their bills or which specific debts they were reneging on, though the authors did note that in Nevada, which was hard hit by the housing crisis, 47% of people had debt in collections. States in the South had the highest rates of debt in collections; the region was also among the hardest hit during the Great Recession.
Geographic differences aside, Americans are financially stressed in general, with many juggling bills and trying to stay one step ahead of creditors while keeping up with daily expenses. Three-quarters of people recently surveyed by Bank of America Merrill Lynch said they weren’t financially secure, and 59% admitted they weren’t always able to pay their mortgage or rent.
When Americans do find themselves in a tight financial spot, many are faced with a difficult decision: pay their bills or put food on the table. Not surprisingly, many will put off paying bills so they can eat dinner. But Americans are selective about which bills they ignore. Based on data from the Consumer Financial Protection Bureau (CFPB) and other sources, these are the bills Americans are least likely to pay when they’re broke.
1. Student loans
Forty percent of people with federal student loans are behind on their payments, according to a report in the Detroit Free-Press, including 20% who are in default, meaning they haven’t made any payments on their loans for nine months or more. Overall, Americans owe $121 billion on defaulted student loans.
Borrowers with smaller student loan balances are actually more likely to default than those who owe more than $10,000, a White House report found. If you are having trouble making your student loan payment, you can apply for a forbearance, which will suspend payments for up to a year without sending you into default.
2. Medical bills
Nineteen percent of consumer credit reports included medical debt that had gone to collections, according to a 2014 report from the CFPB. Overall, bad medical debts made up more than half of all debt in collections on consumers’ credit reports.
They’re also a leading cause of bankruptcy in the U.S. Even people with insurance can find it difficult to cover co-pays and deductibles, especially if they are financial stressed, and these bills may simply go unpaid.
But not all medical debt in collections is the result of people who can’t afford the cost of a six-figure hospital stay. Confusing billing practices may be causing people to inadvertently overlook some medical bills, which are then swiftly sent to collections, the CFPB report noted. Many of these unpaid bills are for less than $500, and a significant number of people with delinquent medical bills on their credit report aren’t financially stressed and typically pay their bills on time.
3. Cable and cell phone bills
Roughly 9% of people had cable, cell phone, wireless, or other telecommunication bills that had gone to collections, according to the CFPB. The average amount owed on these bills was $417.
Delinquent cable and cell phone bills will hurt anyone’s credit score, but they have a particularly negative effect on those who have thin credit reports. Until recently, cable, cell phone, and utility bills only factored into your credit score if you failed to pay them. For someone who didn’t have other items on their credit history, like a credit card, a black mark from an unpaid bill could significantly hurt their score. A new FICO scoring method now considers cell phone and cable bills, but not all lenders are using it.
4. Utility bills
Eight percent of credit reports included an unpaid utility bill. The average amount owed was $436.
Like delinquent cable and cell phone bills, not paying your electric or gas bills can have a negative effect on your credit score. Plus, if you don’t pay your utility bills, your service may be shut off, which can be devastating and dangerous, especially in extreme weather conditions. To get your service turned back on, you may have to pay a reconnection fee or a deposit. Rather than ignoring an electric or gas bill you can’t afford, contact your utility provider. They may have a program to help you pay your bill. Churches and other charity groups may also be able to help you get up-to-date on your payments.
5. Credit cards
Eight percent of credit card balances were more than 90 days past due, according to a report from the Federal Reserve. The average U.S. household with credit card debt owes $15,762 on their cards, according to NerdWallet, so it’s not surprising that some are falling behind on their monthly payments. Yet getting credit is still fairly easy, meaning it’s possible to rack up even more debt as you fall behind on payments on another card. With late fees and double-digit interest, it doesn’t take long to get caught in a debt spiral that’s difficult to escape.