Consumer credit counseling success rate for debt reduction and/or credit repair.
Borrowers who have received credit counseling are almost always better off than people who do not ask for help. Research shows that a significant portion of those who use these services do achieve positive outcomes, including reduced debts and improved credit scores. However, the degree of success can vary depending on the individual’s commitment, the quality of the counseling agency, and the type of debt involved with more information on studies around credit counseling below.
What percentage of customers have success with credit counselors?
According to a study by the National Foundation for Credit Counseling (NFCC and phone number is 1-800-388-2227), approximately 70% of clients who enroll in a Debt Management Plan (DMP), which is a structured repayment plan negotiated by credit counseling agencies, those people have successfully paid off their debts in full over the program’s average 3-5 year period. Three years after the credit counseling process ended, delinquency rates experienced, which is measured by the reduction in 30- and 60-day delinquencies in the last 12 months, was substantially better for clients who were counseled. More details on the NFCC benefits are here. https://www.nfcc.org/wp-content/uploads/2019/04/NFCC-Sharpen-Exec-Summary-2018-update.pdf.
- The NFCC study also showed these clients typically receive a wide variety of benefits. This includes, but is not limited too, reduced interest rates on any debt or loans, waived fees, and consolidated payments, which can make any unpaid bills more manageable and affordable. Another NFCC statistic indicates that clients enrolled in a Dnon-profit DMP plan experience an average monthly payment reduction of 25%, helping them better manage and pay off credit card debt.
- Many of those consumers who received counseling from a NFCC partner were also able to reduce the number of credit accounts they owned with positive balances. This helped reduce the number of bills they needed to pay and therefore helped ensure long term success of the counseling.
- Counselors affiliated with NFCC are also now pushing consumers towards credit card hardship programs. These are being offered by a number of banks and lenders. In most cases, there is no cost to enter into one, but the trick is in getting a company to offer it. The reason that these are becoming more common is that more credit card issuers and banks are willing to deal directly with consumers and provide them with relief on their accounts.
Ohio State University, in a study known as "Credit Counseling and Long-Term Credit Outcomes", found that individuals who received debt and budget counseling were significantly less likely to default on loans. This study assessed the long-term outcomes of consumers participating in nonprofit credit counseling. Among other things, it showed that many people who do not use a professional end up filing bankruptcy or having a “hit” to their FICO scores as the lender needs to write off the balances.
The federal government Consumer Financial Protection Bureau also shows how the process will benefit clients. Credit counseling in itself does not directly improve credit scores, but it lays the groundwork for score recovery. As the process includes paying bills on time, saving money, and in general improving a households finances. The Consumer Financial Protection Bureau (CFPB) notes that most DMP participants initially experience a temporary dip in their credit score due to account closures or changes in repayment terms. However, over time, consistent on-time payments lead to improved credit profiles and find CFPB resources https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/.
According to Cambridge Credit Counseling Corp, about 60% of their clients see a credit score increase within the first year of completing or actively participating in a DMP. The average credit score increase over 12 months is between 50 to 100 points, depending on prior delinquencies and utilization rates.
Tips to contact a legit, beneficial credit counselor
As indicated above, credit counselors can increase the success rate that consumers have in improving their overall financial condition. A counselor can provide individuals with debt reduction services, budgeting tips, and general financial advice. But the bottom line is you have a much better chance in getting help and having success when using a counselor.
There are a couple different types of credit as well as housing counselors. It is recommended to shop around before signing up. One is a HUD certified credit counselor, who, while focusing on housing issues, can deal with other concerns as well. They focus on issues such as mortgage delinquency and foreclosure default resolution counseling and home loan predatory lending education. Click here to find a free HUD foreclosure counselor.
The other type are more focused on consumer debts, budgeting, credit cards, and medical bills. There are national non-profit agencies to call for advice and they can help people increase their chances of success in paying their bills or fixing their credit. For those people that like the more face to face contact, some organizations are more local. The non-profits will operate in every state. Find the listing of national non-profit credit counselors, and read how they can help you during a difficult period.
The bottom line is that your chances of having success in reducing your debts is much greater when you use a credit counselor, in particular those that are non-profit organizations.
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