— And There’s Just One Answer That’s Sustainable

With the stock markets at record highs and unemployment at a comfortable low, there is one problem that is currently being overlooked. That issue is consumer debt and it should not be ignored, even during the good times and it should be a great concern for most people.

The stubbornness of cumbersome personal debt following a recovery highlights problems that are systemic. Even with healthy looking numbers, jobs are still rapidly going overseas. Student debt increases as the cost of attending College keeps getting more costly. In certain instances, prosperity might even ensure a debt crisis that’s going downhill when, for instance, local communities gentrify and local property owners and small companies are unable to keep pace.

A new report from The Center for Microeconomic Data could explain this dynamic. A branch of the Federal Reserve Bank of New York, the CMD (they collect, analyse and centralize microeconomic data) found earlier this year that the total household debt rose by 0.9% to an all-time high of $12.84 trillion. Even those the increase in the percent might seem minuscule, major delinquencies on credit cards increased for three straight quarters. This trend is the longest since 2009, which was just after a collapse in the economy.

A Harris poll for the National Foundation for Credit Counseling (NFCC) done in April showed similar results to those of the CMD. The NFCC 2017 Consumer Financial Literacy Survey discovered considerably more consumers moving personal credit card debt from one month to the next with almost 20% of the participants carrying more than $2,500 to the next month. Concurrently, in a total turnabout of a trend that started with the economic recovery in 2009, consumers in the U .S not spending as much compared to the previous years.

Discounting the dramatic impact in human terms, it is unsettling for just an economic point of view because there are no beneficiaries when the populations are deeper in debt while not spending as much at the same time.

Helping people to manage or get rid of their debt appears to be the only sustainable solution. The two options are debt settlement services that are for-profit and non-profit credit counselors such as the NFCC, which was started in 1951. The NFCC was the country’s first and biggest such organization that was committed to enhancing the financial well-being of people. We will compare the two alternatives and look at where we as a country want to invest our energy.

The member agencies of the NFCC offer millions of consumers in-person financial education, online or via the phone. A holistic approach is used where a thorough financial review is taken and they come up with a financial action plan that is tailored made for each client according to their goals. The Certified Counselors at the NFCC take the full gamut into account, from counseling for bankruptcy and credit card debt to first-time home buyers and student debt and ultimately an in-depth financial education. Keep in mind that one in three of the NFCC members provide multiple services that involve mentoring youth, chemical dependency programs, etc.

NFCC Board Chair and President Debbie Bianucci, who is also CEO of BAI (a 90-year-old company that serves financial services organizations) said that from their extensive experience, the most effective way to deal with the problem of debt is to help empower consumers with the education and experience required to produce a solid action plan and to develop the discipline to stick with the plan. From the perspective of BAI, she believes the NFCC plays a major role in the industry due to the impact it has on consumers as well as the high-quality services and info offered by the network of agencies across the country. They are compassionate and really take the time to understand the situation of every customer removing any judgment or motive for profit.

Bianucci’s predictions were confirmed by the numbers. An independent report was released by the NCFF last spring that was conducted by Ohio State University researchers which measured the impact the “Sharpen Your Financial Focus” has on their clients. Some of the results based on the outcomes of the credit report included an average decrease of $17,000 in overall personal debt, an average decrease of $8,000 in total revolving debt as well as an average increase of 50 points in credit scores. Even more impressive is that the results are long-term and were monitored for six quarters.

The client’s self-confidence also increased. Although 73% of participants stated that they have been consistently paying off their debts after three months, 70% stated that they are more confident financially and 67% now feel they are better at managing money.

The data is supportive for all of the debt relief options and this is why it is critical for consumers to know the difference and make educated choices about the best solutions for their purposes. Since partial debt forgiveness is an option for some, debt settlement seems to be a good alternative. Some people put their faith in for-profit debt settlements and their outcomes were not as positive.

NFCC’s CEO and Acting President Jeff Faulkner stated that although they are in favor of the idea of a less than full balance option for certain consumers, they are concerned that for-profit debt settlement solutions don’t always produce the results their clients were expecting. As outlined in the data the industry sent into the Federal Trade Commission, it has been confirmed that even after three years of being enrolled in a debt settlement plan from a third-party, 66% of the consumers have not made much headway in settling a major portion of their initial debt.

The success rates were even lower among the for-profit organizations. For instance, a GAO study that was cited in a Colorado State Attorney General report stated that between 2008 and 2010 just 10% of participants enrolled in debt settlement programs by for-profit organizations were successful. The Maryland AG, only this month, settled a case against five companies in California that allegedly didn’t settle the majority of debts but were still charging full fees. It isn’t uncommon to come across outright scams. The FTC is working with eleven states, as of this writing, to eliminate student debt relief firms that are running scams. Earlier in the year in a Florida case, some companies were accused by the FTC and the state of falsely claiming nonprofit status.

Catherine A. Allen, Chairman and CEO of The Santa Fe Group (a risk management and cybersecurity company) state that for-profit counseling agencies have not made the customer their first priority. Due to their nonprofit status, member agencies in the NFCC are mandated to offer financial education in their programs for debt management as well as in their various other services. Their programs are effective due to an extensive counselor certification training program, an intensive independent certification procedure for member agencies, along with a powerful list of member values which make sure their client’s needs as a priority.

So is there a “mandate” for the remainder of us? Financial institutions and banks that support groups like the NFCC is a good starting point. Both human and economic factors should be addressed. Banks can take over a billion dollars out of outstanding debts when they commit to supporting nonprofit financial advocated such as the member agencies in the NFCC. Creditors received a total of $1.2 billion in outstanding debt via the NFCC in 2016 alone, as per the NFCC’s own numbers.

Consequently, consumers have to deal with considerably less risk of needing to take care of bad debts through usurious rates of interest. To state the obvious, banks seem to be strangely frugal as well as inexplicably pound-foolish far too often. Much more banks need to be part of this win-win solution. For both self-interest and public responsibility, they should go beyond providing referrals or list debt consultants on their webpages and invest in the nonprofit organizations that provide so much value in return

Allen says she is passionate about the NFCC’s mission and about financial education. As a small town banker, her father gave financial advice to the town’s people, so she was very aware of the importance of a sound financial education from a young age. Allen co-wrote book, which is about how boomers can reinvent themselves even in retirement. Some had to reinvent themselves because they didn’t have enough money saved up, others just want to and others lost everything in the recession. The NFCC counselors were her main motivation to write the book and they were also a source of much of the ideas in the book.

Nonprofits have made measurable gains and it is important to build upon those gains. Bianucci suggest focusing on 3 critical action items moving forward: continued service expansion with particular focus on increasing creative programs for first-time home buyers as well as student debt counseling; less reliance on in-person interfaces as well as using more advanced digital tools; and finally a better funding system where customers pay for some extra services, if they are willing to do so.

In conclusion, debt settlements by themselves are only a temporary solution to the problem of debt. In our economy, the problem itself requires a solution.

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