I often say that “informed consumers have a better chance of achieving financial success.” And because I believe that to be a true statement, I want to take a time-out from blogging to respond to a recent report by the Colorado Attorney General. The report was based on information collected from 42 Colorado registered debt settlement and credit counseling companies. The data for individual organizations and companies is not being made public; however, the aggregated statistics are troubling.
Let me start by saying that I am glad to see states, like Colorado, take an interest in helping consumers understand their options for managing debt. Unmanageable levels of debt have a far reaching impact that can easily damage the foundation of a family’s financial security. I feel strongly that consumers should research all of their options and choose the solution that is best for their unique situation—and I hope that this study encourages consumers to do just that. My greatest concern is that this report will discourage consumers from seeking the help they desperately need. After speaking to a representative from the Attorney General’s office, I felt that some clarification was necessary. Therefore, I would like to specifically address some of the study’s findings.
First, the report reviews nonprofit credit counseling organizations, for-profit credit counseling firms, and debt settlement companies. There are distinct differences between organizations that offer financial help and consumers will want to know exactly who they are working with (take, for example, this recent article in the Star-Ledger). The Attorney General’s office acknowledges this fact and has even created a document to help consumers understand the differences between service providers.
Trustworthy agencies will offer free education and detailed information about all the services they provide. Their counselors will discuss consumer’s entire financial situation and help them develop a plan based on the best option for their personal financial needs. Some things to consider when choosing a reputable credit counseling agency include:
-The credit counseling agency should have a strong history.
-The credit counseling agency should be accredited by a neutral third party, such as the Council on Accreditation (COA). If they state that they’re accredited, make sure the accreditation is current, not lapsed.
-The counselors at the credit counseling agency should be certified by an independent organization such as the National Foundation for Credit Counseling (NFCC).
According to the report, Colorado consumers paid an average of $495 for credit counseling. Credit counseling through a reputable credit counseling agency is free. Money Management International (MMI) is a nonprofit organization that also offers education services and housing counseling services to consumers free of charge. If a client chooses to establish a Debt Management Plan (DMP) with MMI, there is a one-time setup fee and a monthly charge to contribute to the administration of the Plan. Under Colorado law, the maximum setup fee is $50 and the maximum monthly fee is $50. MMI and other reputable agencies do not charge either of these maximum amounts and even waive or reduce fees based on a client’s inability to pay. In contrast, debt settlement providers may charge 18 percent of the total principal amount at the time of enrollment.
The report only addresses debt management and settlement. Reputable credit counseling agencies have multiple ways to help consumers achieve their financial goals. Here are a few of MMI/CCCS’s statistics to consider.
In 2008:
-MMI conducted a record 608,533 counseling sessions;
-more than 96,000 consumers benefited from MMI’s education seminars and community outreach programs;
-the total number of delinquent mortgage sessions increased an astonishing 215 percent over the previous year to more than 126,000;
-MMI helped consumers begin the process of seeking 40,000 loan modifications through our affiliation with the Hope Hotline;
-nearly $1 million was granted to more than 1,700 homeowners through the Preserving Homeownership And Savings Education Strategy program;
-MMI helped 47,475 older Americans understand their financial options through reverse mortgage counseling sessions; and
-more than 1.7 million consumers visited MoneyManagement.org for financial education and guidance.
In addition to credit and budgeting counseling, foreclosure prevention counseling, and reverse mortgage counseling, MMI is also approved to deliver bankruptcy counseling and education services.
Also according to the Report, less than 10 percent of Colorado consumers successfully resolved debt through a debt management plan or debt settlement. Speaking specifically “success rates” is personally difficult for me because I truly believe that MMI’s success rate is 100%. Our mission is to improve lives through financial education. The value of counseling and advice is to share information and clarify goals. We don’t tell clients what to do; we value their ability to make the best choice for their particular circumstances.
As for the consumers who elect to establish a Debt Management Plan (DMP), success comes in a number of forms. Some consumers need temporary assistance while others repay their debts entirely through the program—both are successful. Even clients who struggle with debt repayment take away valuable information about budgeting and money management. All that being said, I can safely say that the majority of clients who start DMP with MMI end up successfully completing or taking over and self administering their situation after being on a plan for a period of time. The minority close purely for non-payment at MMI.
According to the report, the average contract term was nearly 41 months for credit counseling. I agree with Attorney General Suthers when he says that credit counseling is not a quick fix. In fact, I would urge someone to proceed with caution if they are promised a quick fix for digging out of debt. Consumers should carefully consider all their options and understand that it will take time and determination to meet their goal of becoming debt free.
I wrote this post because I want to be sure that people who really could benefit from MMI’s many services are not discouraged from doing so. Just last month, I received hundreds of letters from former clients telling me how their lives have improved since repaying their debts. They use words like “free,” “incredible,” and “proud.” We understand that the Debt Management Plan (DMP) is just one of the many ways to repay debt; however, for many, it is good choice.
Thank you for the opportunity to share my thoughts.