Debt of all kinds rose in the third quarter — credit cards, car loans, mortgages — the Federal Reserve Bank of New York found in its latest report on household debt. And delinquencies rose too, especially for credit cards. Yet the percentage of people who have debt in collections was about as low as it’s been in the last 20 years.

Just before the pandemic started, the New York Fed found about 9% of people had bills that were so overdue they ended up in collections.

Now, less than 5% do. 

“Through the COVID recession, and since then, it really has hit historic lows, the percent of consumers with debt in collection,” said Josh Bivens with the Economic Policy Institute.

“To me, that mostly is a story of just the very large amount of pandemic fiscal relief and aid we gave households, the economic impact payments and expanded unemployment insurance,” Bivens said.

That gave a lot of people a big buffer and helped them pay down debt, he said. So did the 3 1/2 year pause on student loans.

“It’s quite a bit of money that people could use to make sure they weren’t falling behind other debts,” Bivens said.

Fredric Blavin at the Urban Institute said more recently, there’s been another factor at play too: “In April of 2023, the major credit bureau agencies stopped including medical debt collection items under $500 in credit reports.”

Medical debt previously made up about 60% of debt in collections. But data shows it doesn’t tell you much about someone’s creditworthiness.

Chi Chi Wu at the National Consumer Law Center said the change is a good thing, but just because that collections debt is no longer showing up on people’s credit reports doesn’t necessarily mean they’re doing better financially, or that that debt doesn’t exist.

“It most definitely still exists and is still burdening consumers. It just means that the harmful impact of debt collection items on credit reports is no longer there,” Wu said.

That’s not insignificant, she said. Credit reports can determine whether someone gets a loan, a job or an apartment.