subject: Why does credit counseling fail? [print this page] Why does credit counseling fail? Why does credit counseling fail?
According to the NFCC statistics, out of the 3.2 million people who asked NFCC agencies for help last year, about one-third was able to manage their finances on their own. Another one-third was too far gone in debt, for various reasons, and were therefore referred or sent off to social services agencies for further assistance. The last third were enrolled in credit counseling agencies' debt management programs (DMPs).
Did the DMP help?
With an average dropout rate of at least 45%, your guess is as good as mine. That is not to say that consumers should avoid signing up for DMPs because they do not work. The figure only shows that a lot or almost half of those who sign up do not finish.
What are the reasons for the high dropout rate?
Affordability the consumers cannot afford the payment plan or budget that the creditors set up. Just the creditors arrive at their recommended payment plan is anybody's guess but some say that it's based on how the creditor can maximize its returns and not on what's realistic and sustainable for consumers. Most consumers end up paying as much as they were originally paying or worse, more.
In a DMP, the consumer must remain current with the creditors, to make it possible to negotiate the interest rates, as getting a lower monthly payment may not be an option.
So should consumers still do DMPs?
It's really a case to case basis. Coming up with a decision should always be based on what transpired in the counseling. But having said that, If the consumer's debt amount is not that big, but is really struggling with the payments because of the high interest rates, enrollment in the DMP might help.
How does credit counseling reflect on the credit report?
The report will reflect that the consumer is enrolled in the DMP but only throughout its tenure, after which, it should no longer be there.
