Almost 1 in 5 Young Adults Has Debt in Collections. Here's Why That's a Huge Problem

Once your debt goes into collections, it opens up a world of consequences.

There are plenty of reasons why people land in debt. Sometimes, it's due to unplanned bills -- and not having enough money in a savings account to cover them. Other times, it's due to financial peer pressure, like during the holidays or when you're invited to participate in multiple weddings within the same year.

But it's not just major expenses that have the potential to create a personal debt crisis. Sometimes, a gradual but notable increase in living costs could be enough to drive up your credit card balances. Such was no doubt the case for a lot of people in 2022, when rampant inflation forced a lot of people into debt despite spending cutbacks.

Debt has the potential to impact consumers of all ages. But recent data from the Urban Institute found that almost 20% of young adults aged 18 to 24 have debt that's reached the point of landing in collections. And that's a major problem on multiple levels.

Collections can be stressful

When a debt reaches the point of being handed over to a collections agency, it means the original creditor has tried to collect on an overdue debt and failed. And so they've turned the debt over to an agency whose job is solely to focus on recouping overdue debts.

But that can be stressful to experience as a consumer. Debt collectors can call at inconvenient times and use strong language to try to scare you into paying. And while there are specific actions debt collectors cannot take, like use foul or harassing language and call you at unreasonable hours, they are allowed to be persistent in their efforts to get the money they're after. That has the potential to be a very aggravating experience for you -- especially if you know you're unable to pay.

Major credit score damage can ensue

If your debt has reached a point where it's been turned over to a collections agency, it means you're pretty far behind on it. And that alone could cause extensive damage to your credit score, making it difficult to borrow money in a pinch when you need to.

Credit score damage due to falling behind on debts could be especially problematic for younger consumers. Why so? Younger consumers generally don't have as lengthy a credit history as older ones. That alone puts them at a disadvantage when it comes to having strong credit. To then take a hit on top of that could mean spending years struggling to not just borrow money, but do other things that hinge on having a good credit score, like renting an apartment.

What to do if you can't pay your debts

If you know you can't pay a given debt, or pay it in full, don't just ignore the problem and hope it will go away. Instead, reach out to the entity you owe money to, explain your situation, and see what concessions they're willing to make.

If, for example, you owe $1,500 on a medical bill, your provider might be willing to break that down into a 15-month payment plan for you. And as long as you pay your $100 bill every month, it might agree to not report you as delinquent to any of the credit bureaus or turn your unpaid bills over to a collections agency.

If you're deep in debt beyond that point, you may want to contact a debt settlement attorney or service and see what options you have. These professionals or firms may be able to negotiate on your behalf so you're able to stop getting those constant calls asking you to pay, and so you can begin to more easily work your way out of that hole and bring your credit score back up.