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Collection Agencies in the Face of Increasing Debt

The 22 trillion dollar debt that the federal government has accumulated gets most of the attention, but the truth is that we would still be 50 trillion dollars in debt even if the national debt was eliminated somehow. Today, debt levels are exploding on every level of society. Corporate debt has more than doubled since the last financial crisis, U.S. consumers are more than 13 trillion dollars in debt, and state and local governments are piling up debt as if tomorrow will never come. According to a Federal Reserve chart that you can find right here, the total amount of debt in the U.S. financial system has now reached an astounding 72 trillion dollars.

Dividing $72,000,000,000,000 by the current population of the United States (Google says it is 327.2 million), it breaks down to more than $220,000 for every man, woman and child in the entire country.

So if you have a family of four, your share of all this debt is $880,000.

This debt bubble has been growing much, much faster than the overall economy for a very long time. When Ronald Reagan took office the total amount of debt in our system was less than 5 trillion dollars, and when George W. Bush took office the total amount of debt in our system was just over 29 trillion dollars.

Just prior to the last financial crisis we surpassed the 54 trillion dollar mark, and so since that time we have added nearly 18 trillion dollars to our total.

Every financial bubble in history has eventually ended, and this one will too.

Journalist and book author Charles Hugh Smith says the next market crash and recession will unfold like the bursting of the 2000 Dotcom bubble. Smith explains, “The bubble popped or deflated not for any crisis, but simply because there was too much debt, too much leverage, too much euphoria and unrealistic valuations. I think we are seeing that now in stocks, housing and a lot of other assets around the world. The valuations just exceed what makes financial sense. . . . And remember, we are at the longest expansion in history. It’s over 10 years, and the average expansion lasts 5, 6 or 7 years. So, this expansion is pretty long in tooth. . . . You will get a slowdown, and that is a self-reinforcing feedback loop. Once people stop buying houses and once people stop buying cars . . . then you are going to get people being laid off, less people being able to afford to eat out, and then you get a self-reinforcing recession. It’s not a crisis, but like an erosion because everybody is kind of tapped out.”

By recovering tens of billions of dollars in delinquent consumer debt each year that may otherwise go uncollected, the third-party debt collection industry generates important benefits to the U.S. economy.

Unrecovered accounts receivables place a significant strain on the American economy, negatively affecting consumer pricing for goods and services, driving up the cost of borrowing, and undercutting the bottom line in every business category.

Debt collection improves inflation by reducing prices for goods and services while decreasing the risk of business insolvency for companies that improve their debt recovery processes. A recent study found that of the $78.5 billion in debt collected in 2016, with the collection agency fees removed, third-party debt collection agencies returned $67.6 billion back to their clients. The direct impact on accounts receivables for any size business is profoundly positive.

Third-party debt collection infuses a significant amount of cash back into the American economy.

The study also pointed out that, of the revenues collected in 2016, 29% of the debt collected was less than 90 days past due. However, the collection agency industry recovered 71% of the debt that was over 90 days past due. This is a startling number that illustrates the real value of a collection agency in capturing significantly aged past due accounts. For industries like healthcare, which has carved out the top debt category, this is particularly important.

The study showed that the American collection agency industry is making a significant positive impact on behalf of their clients on collection past due A/R from the other leading debt categories. This includes industry debts from healthcare to student loans, credit cards, retail, utility, mortgage, and government-related debt.

With these numbers in hand, it seems clear that third-party debt collection firms provide real ROI that benefits their clients. In addition to the positive impact on the economy, and the corporate bottom line, the collection agency industry employs more than 218,000, with a payroll of more than $12 billion annually. This adds to the economic benefit of firms that recover past due A/R.

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