Debt Relief is Being Sought Less Often as Consumers Turn to Credit Cards
As the economy struggles and bills pile up, consumers are piling on credit card debt while eschewing credit counseling, debt management, debt settlement, and other debt relief programs that offer to help consumers get their finances back in order, according to a new study.
The study, by CardHub.com, found that while poverty has increased and unemployment continues to hover around 9 percent, consumers racked up $18.4 billion more in credit card debt in the second quarter this year that they did in the first quarter. That’s a steep 66 percent increase from a year ago and a whopping 368 percent from two years ago.
At the same time, fewer consumers are seeking debt help, relying instead on their credit cards to bail them out, at least for the short term. It’s a trend that troubles Gail Cunningham, spokeswoman for the National Foundation of Credit Counseling. “People need help more than ever, but they are not coming to us,” Cunningham said. “I think some are just tired of trying and have given up” (“Fewer People in Debt Trouble Seeking Counseling, Other Help,” USA Today, Oct. 12, 2011).
According to the study, the number of people who went to a credit counselor last year fell 20 percent from 2009, and the downturn has continued so far this year. Additionally, 38 percent fewer consumers signed up for a debt repayment plan at the Association of Independent Consumer Credit Counseling Agencies (AICCCA) during the first half of the year compared with 2010. And the number of consumers who filed for bankruptcy protection to escape debt is down 10 percent from the same period last year. However, the decline in bankruptcies may not be surprising since there’s no point in filing for bankruptcy if people have no income and no assets, according to University of Illinois law professor Robert Lawless.
The real reason that more people may not be seeking debt relief may be because of the costs involved. Even though new Federal Trade Commission rules prohibit debt relief companies from charging advance fees for debt settlement services, consumers still have to pay a portion of the amount of debt settled, as well as a service fee, once a settlement with creditors is reached. “Now consumers are saying they can’t even afford a debt-settlement payment,” said Andrew Houser, CEO of Freedom Debt Relief and a board member of the Association of Settlement Companies.
Dave Jones, president of AICCCA, attributed the drop in the number of consumers seeking debt help to a worsening economy that has deepened consumers’ struggles. “There is a huge segment of the debt-burdened population that is teetering on the edge of bankruptcy,” Jones said.
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