According to a recent report by the Urban Institue, 35 percent of Americans have debt in collections.
According to a recent report by the Urban Institue, 35 percent of Americans have debt in collections. - 
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This just in from the Department of Phone-Calls-You’d-Rather-Not-Get: one in three Americans with credit files had some kind of debt in collection last year, according to a new report.  All told, that's about 77 million consumers who are poised to get one of those inherently stressful calls from a debt collector.

The Urban Institute partnered with Encore Capital Group, the country's largest publicly traded consumer debt buyer, on the study. To understand the significance of these findings, here’s a little context:

When a debt goes into collection, it basically means the original people you owe money to (maybe a bank or a credit card company or a doctor's office) have given up trying to get it back on their own and a third party is now involved. In some cases, the original creditor sends the debt to an internal collections department to handle it. In other cases, they hire an outside agency to collect for them. In still other cases, the debt is sold to another company altogether. 

The collector is usually paid on commission, based on how much of the debt can be recovered. Meaning, if you have a debt that's sent in to collection, you basically become a name on a spreadsheet for the debt collector.

Gustavo Montoya, an emergency room nursing assistant in San Diego, ended up on one of these debtor spreadsheets a few years ago. He'd taken a loan for $3,000 from Wells Fargo to help pay for living expenses while he was in school. Then, in 2011, he was contacted by a different company, one he'd never heard of, who had bought his debt. 

For two years, the new company called him every day, until another one started calling instead. Montoya, who was unemployed at the time, says he tried to explain his situation to the collectors that called him. 

“The economy was still bad," Montoya said, "I was finding difficulty getting employment. It was really stressful."

Graphic courtesy of the Urban Institute.

Beyond the stress, falling into collection can have big repercussions, says Suzanne Martindale, a staff attorney with Consumers Union. It can affect your credit score, your ability to get a loan in the future, even your ability to get a job. The growing practice of passing debt from one collector to another, or selling it to another debt buyer, means that in a matter of months there can be several different people from different companies claiming you owe debt to them.

“Many consumers I’ve spoken with are just utterly confused — 'who’s telling me the truth here, what are my rights, and how can I resolve the problem and just get on with my life?'”

Mark Schiffman, with the Association of Credit and Collection Professionals, an industry group, says the collections process can be stressful. but it can also be an important step in keeping the economy moving.

“Businesses use those moneys to pay their bills, to pay rent, to keep operational costs, to pay salaries.”

Even once the original creditor has written off a debt as a loss, and sold it to a third party, the act of debt collection itself can be big business too.

Graphic by Shea Huffman/Marketplace

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