Why Credit Counseling Debt Relief Has A High Failure Rate

Consumers who are carefully researching their debt relief options will come across information about how credit counseling programs have a failure rate as high as 70 percent. By all accounts this is an outrageously high number, and one that should have consumers exploring their available debt relief solutions to reconsider credit counseling. With millions of Americans seeking credit counseling each year, it is important to investigate the underlying problem that credit counseling poses to the 70% of consumers who are never able to complete their program. There are several reasons why debt management plans are difficult to manage. The purpose of this article to lay out exactly why credit counseling typically fails, so that consumers who are considering it as a bankruptcy alternative can gauge whether these problems would affect their situation.

1. Does not provide adequate debt relief. In order to understand why this is the case, one must first understand who typically seeks credit counseling services---those who are overextended and with limited available income. Then, one must consider the nature of a credit counseling program--- the debt is paid back with interest, oftentimes as high as 10 percent, over 4 to 5 years. Together this equates to a payment that can be higher than what consumer hard with the credit card companies. Given the demographic of credit counseling clients and the nature of the program offered, it is no surprise that debt management plans have such a low success rate.

2. The fixed payment approach is inflexible. Do you know what debt relief option also has a very high failure rate? Chapter 13 bankruptcy. What does Chapter 13 bankruptcy have in common with credit counseling programs? Both are extremely rigid and as little as one missed or under-funded payment can lead to the special rates being dropped (or contempt of the court charges in extreme case for Chapter 13 bankruptcy). For consumers who are overextended and barely able to afford the payments in credit counseling, one unexpected expense like a car repair or medical bill can put the entire program in jeopardy. Given the fact that credit counseling programs are 4 to 5 years in length, the likelihood of a payment needing to be adjusted because of an unexpected expense is pretty high. Unfortunately, credit counseling programs are extremely inflexible, which leaves no safety net in the event that one of these next-to-inevitable situations arises.