Consumers' Overdue Debts Put Extra Weight on Economy

Wednesday, 13 Aug 2014 08:38 PM

By Dan Weil

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The conventional wisdom is that the American consumer has deleveraged since the 2008-09 financial crisis.

But a new study from the Urban Institute shows that 5 percent of American adults on file with credit reporting agencies have at least one debt that is between one and six months overdue, The Fiscal Times reports.

And more than one-third have seen a debt sent to a collection agency within the past seven years.

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"They are stunning numbers," declares Caroline Ratcliffe, author of the study and a senior fellow at the institute,. "Debt in collections is pervasive, and it threads through nearly all communities."

That may be one reason why the economy has been sluggish since the recession ended, expanding at only a 2.2 percent pace, notes Fiscal Times reporter Rob Garver. Bad debts limit consumer borrowing, which in turn limits economic growth.

"The important part of it is that this debt can harm people’s credit scores," Ratcliffe said. "To the extent that it impacts people’s access to well-priced credit it can affect whether they will be able to buy a home or get that loan to start a business.”

MarketWatch columnist Rex Nutting also is worried about consumer debt.

"Recent data show that the middle class is once again borrowing, mostly for autos and education. Although the cost of servicing their debts has fallen to a record low thanks to low interest rates, middle-class families are vulnerable if interest rates rise significantly," he writes.

"And that means the economy is vulnerable."

Consumer credit outstanding rose to $3.2 trillion in May from $2.6 trillion in 2009.

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