Special Report

States Where People Are Struggling the Most with Debt

Though the COVID-19 pandemic disrupted many households financially, adding to debt burdens at times, the share of people with debt in collection has very slightly improved and in October 2020 stood at around 29% of people with a credit bureau record, according to the Urban Institute, a nonprofit research organization.

Having debt in collection usually means that after being late on payments, such as for a car loan or a credit card bill, the debt has been sent to a third party — a collection agency — which will aggressively try to collect it. Having debt in collection, needless to say, can be very stressful. 

Across states, the share of people with debt in collection ranges from 14.39% to 41.61%, according to the state. States with higher poverty rates and lower incomes tend to have a higher share of people with debt in collection. The median amount of debt in collection ranges from about $1,300 to over $2,500.

Having debt in collection affects a person’s credit score, which can then affect credit availability — a key element in a family’s financial health. A solid credit rating provides access to long-term borrowing for the purchase of large ticket items, such as houses, automobiles, and home furnishings, and to pay for college tuition or handle medical bills. 

The absence of good credit, on the other hand, can feed into a cycle of poverty, not only crippling a family’s chances of home ownership and a college education for offspring, but draining already limited resources when borrowing is necessary. A poor credit rating reduces a borrower’s options to “payday loans” and other short-term, high-interest debt. (These are the states where people are struggling with the most debt.)

Not surprisingly, average credit health varies by location. Across the U.S., the average credit score is 704, and credit scores range from an average of 654 in Mississippi to 738 in Minnesota, with the lowest scores found in the states with the highest rates of poverty. (These are the towns with the highest poverty rates in the nation.)

To identify the share of people in each state who have debt in collections, 24/7 Wall St. reviewed data from Urban Institute’s report “Credit Health During the COVID-19 Pandemic,” and ranked each state by the share of people with a credit bureau record with any debt in collections as of October 2020, the latest available. Debt in collections means unpaid bills, fees, credit card debt, and payments referred to collection agencies. 

Click here to see the states where the most people are struggling with debt in collection

Additional data sourced from the Urban Institute includes median debt in collections and median credit score per state. The Urban Institute dataset contains information derived from de-identified, consumer-level records from a major credit bureau nationwide, covering the period from February through October, 2020. 24/7 Wall St. added 2019 poverty rate, uninsured rate, and median household income from the U.S. Census Bureau’s 2019 American Community Survey.