With bankruptcies skyrocketing to an all time high (now over 1.3 million households per year) and millions of credit accounts becoming delinquent every month, the lending industry has found that it is in their best interest to help overburdened customers find a way to repay their obligations. The credit community has discovered that non-profit credit counseling is the best way to achieve that goal.

For their customers that elect to get help from an approved non-profit credit counseling agency, the creditors are willing to offer certain incentives that include the reduction or elimination of late fees and overlimit charges and the re-aging of delinquent accounts to a current status. The last incentive, Re-aging, means the account is given a "Fresh Start" by advancing the due date on the account so it is no longer delinquent and is reported to the credit bureaus as being up-to-date and paid as agreed going forward each month.

By using non-profit credit counseling agencies to administer these programs and provide guidance to their customers; creditors substantially reduce their losses while restoring or protecting the credit rating of their customers. It has been proven to be a "Win-Win" program and millions of Americans are using credit counseling to get out of debt and back on track. Why Credit Counseling?

There are two main approaches available to creditors attempting to het payments from delinquent customers for funds advanced or services rendered: Collections and Credit Counseling.

"Robbing from Peter to pay Paul"

The Collection Method uses the "squeaky wheel gets the grease" philosophy. The creditors or collectors, working against each other, apply as much pressure as they can in an effort to squeeze as much money as possible out of a debtor each month. The result, more often than not, is that the most aggressive collectors get paid and the least aggressive creditors get ignored until they too are forced into the same collection practices.

This method only succeeds in increasing the feelings of hopelessness and despair felt by the debtors. Many seek relief from the pressure by initially trying to avoid and ignore the problem and eventually eliminating it by filing bankruptcy.

"Getting their Fair Share"

On the other hand, the Credit Counseling Method seeks to achieve the goal of repayment of debts incurred by meeting with the debtor, determining the nature of the problem, and reviewing all information on the application. Once this is accomplished, a sensible and equitable repayment plan can be implemented. This assures all creditors of getting their fair share of the funds available each month and seeing to it that all accounts are eventually paid in full.

Whereas, a debtor going it alone often has a feeling of facing the impossible by trying to find a way to satisfy the demands of each collector every month, the debtor that has credit counseling made available to them has a renewed sense of hope and willingness to face the situation. They can now see the "light at the end of the tunnel".

Counseling & Education: A Winning Combination

By GerriDetweiler Reprinted in part by AICCCA from the September/October, 1998 issue of Credit World magazine, with permission from the publisher, the International Credit Association, Lenexa Kansas

Each year, credit and debt counseling agencies help hundreds of thousands of consumers avoid bankruptcy, pay their debts and learn healthy, new money management skills. Often, these agencies are the only hope for consumers torn between the pressures of mounting bills and the lure of bankruptcy as an easy way out of their problems.

The need for effective financial education has, perhaps, never been greater. Despite an expanding economy, Americans are increasingly experiencing money difficulties. In 1997, more than 1.3 million Americans declared bankruptcy, more than double the nearly one-half million that filed in 1987. Aggregate credit card debt more than doubled between 1990 and 1996 and stood at an estimated $455 billion by the end of October, 1997. In addition, the Consumer Federation of America reported that bank’s charge-off rates for unpaid credit card debts that year averaged more than 5 percent, a substantial increase from a typical 3 percent rate in previous decades. Making matters worse, not only have debt burdens increased, but savings rates have dropped. Between 1992 and 1995 they fell from an already low 5.9 percent to 4.6 percent, and the number of families reporting that they spent less than their income declined. In fact, the savings rate at the end of 1997 was reported to be a mere 3.8 percent – a 58-year low.

Although these facts may sound like nothing more than faceless statistics, these trends have a direct impact on people’s lives. Professor E Thomas Garman at Virginia Tech estimates that about half of all workers have money problems. He’s also found that the productivity levels of some 15 percent of employees are negatively impacted by financial stress; the figure is 20 percent for blue-collar workers and those with income adequacy challenges. Other research has revealed that the financial pressures for caring for an elder parent affect some 15 percent of corporate employees. Financial problems take a personal toll, too, placing serious stress on families and marriages.

A national survey of high school students knowledge of basic personal finance topics by the Jump$tart Coalition for Personal Financial Literacy found a significant correlation between mean scores on the survey and bankruptcy rates in the states in which students live. Where knowledge was high, bankruptcy rates were low, and vice versa.

Clearly, we cannot ignore the need for financial education.

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