Credit Counseling Programs Do Not Work For Most People With Debt Problems
It is very hard to get statistics on the true success rate of credit counseling organizations, such as Consumer Credit Counseling Service of Buffalo or Rochester. Although these are legitimate, non-profit agencies, it appears that only a fraction of people who enroll in their programs actually complete them. One such organization reported a success rate of only 28% — meaning a failure rate of 72%.
Debt settlement programs produce even worse results. One Congressional report we reviewed showed that less than 10% of people who enter into debt settlement programs have all their debts resolved. While there is a big difference in how debt settlement and credit counseling programs work, they do share one common problem: most people who sign up for them cannot really even afford the reduced payments. That’s because, on average, people only end up saving about 20% or less on their debts (assuming they actually complete the program), and the reality is that most people’s budgets will not magically be fixed by saving a few hundred dollars per month in payments through these programs. What people really need is the debt forgiveness that chapter 7 or chapter 13 bankruptcy offers.
We know that a lot of people reading this will conclude that we are simply bashing the credit counseling process because we would rather see people file bankruptcy. It is true we believe that most people with debt problems should file bankruptcy. However, this is not because we are against the credit counseling process in theory. In fact, we know that there are some credit counselors who excellent at what they do, and if you want to speak with a legitimate credit counseling organization before making a decision about bankruptcy, we strongly encourage you to speak with Consumer Credit Counseling of Rochester or Buffalo. We trust these organizations because we know that they will not accept you as a client if they do not think that you can complete the program. They will tell you directly if they think you are better off filing bankruptcy.
Most People Tend To Underestimate Their Monthly Expenses When Speaking With Credit Counselors
One major problem with the credit counseling process is that people greatly underestimate their monthly expenses when speaking with the credit counselors, and this results in repayment plans that look great on paper but fail when the first unexpected expense comes along. For example, we have spoken with hundreds of people over the years who fall behind on their regular monthly bills because of the following “unexpected expenses”:
- Car repairs, tire replacements
- Furnace repairs or replacement
- Roof repair or replacement
- General home repairs and upgrades
- Medical bills
- Vet bills and other pet expenses
- Winter heating bills
- Vacations and travel
- Christmas and birthday gifts
While these types of bills do not occur every month, almost everyone is going to face them at one time or another. Let’s face it: if you are driving a 10 year old car, at some point you are going to either spend a few thousand dollars repairing or replacing it. So when you prepare your monthly budget, you must include estimates for these types of expenses. For example, if you tell us that your roof is 15 years old, we are going to budget $200 per month or more for roof replacement costs to ensure that you are accumulating money for this expense when it inevitably arrives.
We are also going to review all the expenses in the household using realistic numbers for your family size. If a single mother with three children tells us that she can make do on $350 per month for a food, we are likely to double that number. That’s because very few families with four people (especially with growing kids) can live on that type of food budget for long, and if that’s all you have left each month after paying installment debt, then clearly you cannot afford credit counseling.