The Blubber

The proportion of Americans facing debt in collections has reached a historically low level, according to data released by the New York Fed on Tuesday.

Why it matters: This development is a positive indication that, despite certain signs of strain in household finances such as an increase in credit card delinquencies, individuals are managing to meet their financial obligations.

The big picture: Dealing with debt in collections, involving collectors reaching out and at times engaging in harassment, can be a distressing experience with significant financial consequences.

When these debts impact your credit score, it becomes challenging to secure loans, rent a home, or even secure employment in some cases. The risk of bankruptcy also rises.

Caveats: The data specifically covers collections debt that is reflected on credit reports.

This year's data reflects a shift in the reporting of medical debts to credit agencies.
Zoom in: Starting in 2023, medical bills under $500 — which previously constituted about two-thirds of collections on reports — are no longer reported to credit bureaus. (Go deeper)

The average collection amount per person in Q3 of this year was over $1,600, compared to around $1,200 last year.
Of note: The student loan moratorium also prevented many bills from going into collections. Even though payments have resumed, borrowers have a 12-month grace period before unpaid bills impact credit reports.

What's next: The Consumer Financial Protection Bureau is advocating for the removal of all medical debt from credit reports, asserting that a failure to pay a medical bill, often incurred during a stressful or even life-or-death situation, does not provide meaningful information about a person's creditworthiness.

The bottom line: Despite negative consumer sentiment, people are managing their bills more effectively than expected, according to Ted Rossman, a senior industry analyst at Bankrate.com.