Debt Management

As Americans sink under medical expenses, debt collectors go to great—and sometimes strange—lengths to collect. Olga Khazan writes on The Atlantic:

Companies can try to collect on medical debt virtually forever. Although old debt is easier to escape in court, little prevents debt collectors from trying to collect on it. “Debt never dies,” says Craig Antico, a former medical-debt collector and a co-founder of RIP Medical Debt, an organization that buys and eliminates medical debt. Only Wisconsin, North Carolina, and Mississippi clear certain debts once they are past the statute of limitations.

Generally, hospitals seeking to get bills paid place accounts in a “waterfall” of collection attempts, Antico told me. At first, hospitals, or the collections agencies they hire, will approach debtors with  a “soft” collection: Did you misplace your bill? Maybe you qualify for charity care. “But then if people aren’t responding, it will get more stressful,” Antico said. A collection agency might report the amount owed to a credit bureau, or the account might be sent to an attorney to enforce collection. (A new proposed federal rule would prohibit debt collectors from calling more than seven times weekly about a debt, but consumer advocates told me this could still result in more than seven calls in a week, since each doctor’s bill can count as a separate debt.)

Eventually, collectors might opt to sue you, in which case they might be able to garnish your wages or put a lien on your property. Antico estimates, based on an ADP report, that about 1.5 percent of American employees have a garnishment on their wages for a medical reason.

You could be getting a 16% return on your money right now, and it’s not that hard to do. As Mark Cuban, the “Shark Tank” star, billionaire entrepreneur, and NBA franchise owner explains, just pay off your debts. Mitch Tuchman writes on MarketWatch:

Pay that off and you stop losing nearly 16% in compounding negative returns.

“The reason for that is whatever interest you have — it might be a student loan with a 7% interest rate — if you pay off that loan, you’re making 7%,” Cuban said.

“And so that’s your immediate return, which is a lot safer than trying to pick a stock, or trying to pick real estate or whatever it may be.”

Yet the cost of not paying off your high-interest debts is astronomical.

Let’s say you have exactly the typical American household credit balance of $6,929 and carry it for 20 years at 16%. You end up paying $135,038.

Now let’s say you invested that amount instead and earned 8.8% over 20 years. You end up with $37,486.

You should invest, the earlier the better. But, truthfully, the math strongly advises that you pay off any high-interest debt you carry as soon as humanly possible.

It’s only been five years since Americans hit a grand total of $3 trillion in consumer debt and yet, by the end of 2018, that figure is expected to jump by another trillion. CNBC reports:

In the first nine months of 2018, Americans had a cumulative $3.93 trillion in debt, excluding mortgages, with $1 trillion of that from credit cards and $2.93 trillion from other sources such as student loans and auto loans. With holiday shopping underway, Americans’ credit card bills are set to increase by at least 5 percent, according to mortgage site LendingTree. That $600 million or so in extra spending is likely to bring consumer debt to a new high of $4 trillion.

Still, LendingTree’s chief economist Tendayi Kapfidze says consumers shouldn’t worry. “It’s a big number, but it’s actually not that concerning, because of the income growth we’ve seen since the crisis,” Kapfidze tells CNBC Make It.

One reason he’s not too worried, Kapfidze says, is that the economy is more stable in 2018 than it was in 2008, and real estate values and consumer bank deposits have grown more than debt has. “Deposits have grown by $2.5 trillion more than consumer debt, and homeowners have nearly $10 trillion more in home equity than they did a decade ago,” he says.

Almost 3 in 10 shoppers are going into the holiday season still carrying debt from last year’s festivities. CNBC reports:

For some people, opening up a credit card statement is like a visit from the Ghost of Christmas Past.

Holiday shoppers are expected to spend generously this year, with the National Retail Federation estimating the average consumer’s outlay at $1,007 for everything from gifts to food to holiday attire — a 4.1 percent increase from last year. Another analysis, from NerdWallet, anticipates an 18 percent jump on gift spending alone, to an average total $776.

But that doesn’t give the true picture of the cost: 28 percent of shoppers are entering this holiday season still paying off debt from last year’s festivities, according to NerdWallet.

Experts say that if you’re among those still lugging around debt from last year, now is a good time to pause and strategize, before Black Friday week sets off a long stretch of frenzied spending.

The total debt shouldered by Americans has hit another record high, rising to $13.5 trillion in the last quarter, while an unusual jump in student-loan delinquencies could provide another signal that the nation’s economic expansion is growing old. Total household debt is now $837 billion higher than its previous peak, which was in 2008 before the recession. NBC News reports:

The world’s largest economy has grown well above potential this year on the back of strong consumer spending and the lowest unemployment rate since the 1960s. If growth continues for another year it will be the longest ever.

Total household debt, driven by a $9.1 trillion in mortgages, is now $837 billion higher than its previous peak in 2008, just as the last recession took hold. Such debt has risen steadily for more than four years and sits more than 21 percent above a trough in 2013.

The $219 billion rise in total debt in the quarter ended September 30 was the biggest jump since 2016.

In order to compete in the economy of tomorrow, many young Americans will need to earn an advanced degree — around 65 percent of all jobs in the United States will require some post-secondary education by 2020. But wages have not grown significantly over the past several years, and student debt holders are being pinched.The result: More than 30 percent of student loan borrowers are in default, late or have stopped making payments after just six years.

CNBC cites reports that within six years, more than 15% of student borrowers had officially defaulted, while 10% more had stopped making payments and another 4.8% were at least 90 days late. And for-profit colleges fared even worse, where nearly 25% of graduates defaulted, and a total of 44% faced “some form of loan distress.”

These trends were masked by Department of Education reports which stopped tracking repayment rates after just three years (reporting defaults rates of just 10%), according to Ben Miller, senior director for post-secondary education at the left-leaning Center for American Progress. “Official statistics present a relatively rosy picture of student debt. But looking at outcomes over more time and in greater detail shows that hundreds of thousands more borrowers from each cohort face troubles repaying.”

Some Americans’ finances are on very thin ice. One in five Americans say they have more credit-card debt than they do in emergency savings, according to a report published Thursday from the personal-finance company Bankrate. Another 12% said they had no credit card debt, but they also had no savings. Bankrate surveyed 1,000 people during early February. Maria LaMagna writes on MarketWatch:

But the report isn’t all bad news. More than half (58%) said they had more in emergency savings funds than in credit-card debt, the highest percentage Bankrate has ever had, tied with the amount who said this in 2015.

Financial experts typically recommend that all consumers have three to six months’ worth of expenses saved in an easy-to-access emergency fund, to guard against any unexpected expenses. Bankrate did not ask exactly how much those surveyed had saved…

Consumers trying to build an emergency fund should set up an automatic savings plan, said Greg McBride, chief financial analyst at Bankrate. That will put a certain percentage of their paycheck into a savings account. After determining the amount they can put in that fund for each paycheck, they can then pay debt with whatever funds they can spare in their budget.

“Saving is all about establishing a habit,” he said.

A man was shot at his Cleveland home Saturday during a dispute over a $10 yard work debt, police say. Cleveland.com reported:

A Cleveland man who failed to pay $10 for yard work was shot Saturday after two men tried to collect on the debt, police say.

The 38-year-old victim suffered a gunshot wound to his hip and a possible leg fracture in the shooting that happened at his home on East 71st Street near Harvard Avenue in the South Broadway neighborhood.

The man told police that he agreed to pay $20 to two men who cut his grass on Thursday. He only had $10 at the time, so he told the pair to return on Saturday for the rest of their payment, according to a Cleveland police report.

The duo returned to the house around 5:30 p.m. Saturday with a third man. They pounded and pulled on the man’s screen door until he came downstairs and found the door damaged, the report says.

He told the men he would no longer pay them because he’d have to spend money to fix the door, the report says.

The third man told the pair to pull out their gun, the report says. One of the yard workers flashed a semi-automatic pistol and fired a single round as the victim tried to close his door, the report says.

The bullet went through the door and hit him in the hip. Paramedics found him injured on a staircase and took him to MetroHealth for treatment, the report says.

Americans die with an average debt of $62,000, and almost half of them die nearly broke. Maurie Backman writes on The Motley Fool:

“In a recent GoBankingRates study, 69% of adults admitted to having less than $1,000 in the bank, while 34% said they actually don’t have any savings at all. But apparently, this collective lack of savings doesn’t get all that much better with age. A study by the National Bureau of Economic Research found not so long ago that almost half of Americans die nearly broke. Of the general population, 46% of retirees die with savings of $10,000 or less. But that number climbs to 57% among retirees who are single.”

“The problem is that dying nearly broke isn’t just a matter of denying one’s beneficiaries an inheritance. Rather, it points to a frightening degree of financial vulnerability during retirement. If seniors are passing without much in the way of assets, it means that in the years leading up to their death, they’re ill equipped to handle a major unexpected expense, such as a significant medical bill.”