The Dangerous State of Delinquent Debt in America

As questions about the strength of the United States economy continue, there is no question that the amount of debt carried by its citizens is a ticking time bomb that is just waiting to explode. As a result of the Great Recession, many Americans were forced to take on more debt and have since fallen behind in their attempt to repay those debts.

Today, while many believe the economy to be on the rebound, millions of Americans are still drowning in debt that they cannot afford to service. The Urban Institute recently released a new report that contained some shocking statistics regarding the amount of delinquent debt that exists in the United States.

Debt Statistics 

The Urban Institute report states that 30% of Americans have an account that is currently in collections. Of those citizens, the average amount owed on those collections is $5,178. This is approximately 10% of the $53,000 median annual income listed in the report. That means that 30% of all American citizens are behind in making payments on debts that account for more than 10% of their annual income! On top of that, the report also says that one out of every 20 people in this country are at least 30 days late on one or more of their credit cards.

The report also breaks down the amount of delinquent debt on a state-by-state basis. What this shows is that the Southern states from Florida to Texas are suffering the most. The Midwest states are also struggling. The worst state in terms of delinquent debt is Nevada, with 47% of its citizens dealing with an account in collections.  

So what do all these delinquent debt numbers mean for small businesses in the United States?

Impact on Small Business 

It appears than an increasing number of all Americans are having a more difficult time paying their regular bills on time. This increasing percentage of Americans translates directly to an increasing number of our actual customers, especially in the Southern states. That means more and more of your local customers are struggling to get by each month.

As your regular customers fall further and further behind on their payments, they are naturally going to be falling behind on repaying any credit you have extended to them. This means that as this trend continues, you are going to be confronted with more and more customers who fail to make their regular payments.

Once those regular customers become delinquent on their accounts, you won’t be willing to extend them any further credit. That means that those regular customers won’t be able to continue doing business with you. As more and more of your customer fall into the debt trap, you will be both losing business and failing to collect payment for business you have already done.

You are also going to be less likely to obtain business from new customers because an increasing number of potential customers you haven’t even met are also dealing with debt issues. That will make them less willing to take on more debt for whatever service you offer.

How To Protect Yourself 

In order to protect yourself from allowing this giant snowball to gain momentum, the first thing you should do is make sure that you are only extending new credit to the most qualified customers. Make sure that your credit check process is as strict as possible.

For customers that you already have account with, you need to be ready to forward those accounts to a collection agency the moment that the account becomes delinquent. It will help to already have a working relationship with a commercial debt collection agency and a solid debt recovery process in place.

While there is very little that any of us can personally do about this looming national debt crisis, we owe it to ourselves to make sure that we are prepared for it. You have to protect yourself from the possibility that even your best customers stop making their payments.

By |2017-09-16T12:26:32+00:00September 18th, 2014|Blog|0 Comments

About the Author:

Graduated from University of Utah - business degree 1990. Served in US Army as an interrogator / linguist, then as a tactical intelligence officer - Military Intelligence 1986-1990. Managed Western US sales operations for NY based collection agency 1990-1992. Founded Direct Recovery Associates, Inc. 1992-present