Consumers Have Difficulty Managing Rising Household Debt

Individuals with higher incomes and educational levels are among the 25 percent of consumers surveyed by PYMNTS who say they have difficulty managing household debt, according to the organization’s Financial Invisibles Report^®.

The survey examines how consumers use credit and manage bills with the goal to showcase spending trends among “financial Invisibles,” who primarily live paycheck to paycheck, according to an article on pymnts.com.

Overall quarterly household debt continues to rise, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit.

Total household debt grew by $82 billion to $13.29 trillion in the second quarter this year, according to a news release on the report. This marks the 16^th quarter that debt continues to rise, ACA International previously reported.

PYMNTS surveyed more than 2,000 consumers about their finances and household circumstances and divided the group into four categories based on financial stressors:

• “No Worries:” These consumers have no debts in collections or delinquencies in the last several years and only have an occasional late bill or payment.
• “Second Chances:” Consumers with one or more debt in collection or delinquency in the past who are working their way back from past financial troubles.
• “On the Edge:” Consumers with no debts in collection or delinquencies in the last several years who elect not to use credit or debit cards, however, they have trouble paying many bills on a monthly basis and often live paycheck to paycheck.
• “Shutout:” Consumers with one or more debt collection or delinquency who are not able to obtain bank or credit card accounts.

Key findings in the report include:

• Thirty percent of the No Worries group, 79 percent of the Second Chances group, 43 percent of On the Edge consumers and 86 percent of Shutouts say they live paycheck to paycheck.
• Over 83 percent of respondents say their personal finances did not change or improved from a year ago.
• About 33 percent of respondents also said they fell behind on bills in the past year.
• Among younger respondents in the group surveyed, they rely more on credit than older consumers. About 20 percent of consumers in the survey older than 65 say they use credit to pay for personal debt, compared to about 60 percent of consumers ages 18 to 24.
• Credit card debt is also the most common type of debt burden for consumers contacted about past-due bills. About 43 percent said they were contacted about overdue credit card payments, followed by 28.2 percent who said they were contacted about past-due medical bills.

“Another important component to our analysis was how our respondents reported feeling about their overall financial stability — and how those responses compared to past surveys. The results were surprising: Though most of our sample reported being on more stable financial ground this quarter than in the previous one, they also reported higher delinquency rates,” according to an article on the survey on pymnts.com. “Those with some of the highest incomes and educational levels that we surveyed were also among those with the most precarious financial circumstances. The most worrying category of borrowers is roughly 42 years old and earns $63,000 a year. Sixty percent of them own their own home and are employed full-time. Forty-one percent have college degrees.”

The survey results also show why consumers fall behind on their bills, including sudden medical expenses or income loss due to unemployment, and the impact of financial distress on respondents.

“Credit products are assuming larger roles in American citizens’ personal finances, and debt management are becoming increasingly critical for individuals from all walks of life,” it concludes.

How can you help when working with consumers from these groups with unpaid debts?

Of course, it’s ideal to secure payment in full from a consumer to help a client, but finding a payment arrangement that satisfies both parties may be more realistic in some circumstances.

Ask open-ended questions to determine more information about the consumer to understand their current financial situation and explain the minimum requirements to start a payment arrangement, reports Collector magazine editor Anne Rosso May. Read the April issue of ACA International’s flagship publication for more tips on payment arrangements that can help consumers and your clients.

View the complete financial Invisibles report from pymnts.com.