Why Credit Counseling Often Fails

MSN Money columnist Liz Pulliam Weston recently wrote an interesting column about the high failure rate in the credit counseling business. It turns out that most people who sign up for credit card counseling, even if they’re working with a legitimate counselor licensed by the National Foundation for Credit Counseling, fail to pay down their debt.

This often leaves these people with one choice: They have to file for bankruptcy protection.

Pulliam Weston cited statistics from the National Foundation for Credit Counseling in her column. According to these numbers, of the 3.2 million people who contacted the foundation for help in 2008, one-third were able to handle their financial problems on their own after a counseling session. Another third had too much debt for credit counseling to matter or were referred to social service agencies to deal with more important issues such as gambling or alcohol addiction.

The final third did enroll in debt-management programs, but at least 45 percent of these people dropped out of their programs before paying down their debt.

Pulliam Weston emphasizes that she doesn’t bring up these numbers to dissuade struggling consumers from taking sessions at a legitimate credit counseling center. The professionals working in such places can help consumers identify the reasons why they overspend. They can then help them change their negative spending habits, preventing them from running up their debt again in the future.

However, the column does serve as a reminder to consumers that eliminating debt is far from easy. It takes real commitment and it takes will power. It makes little sense for consumers to eliminate their debt if they’re just going to run it up again in the next several months.

Unfortunately, with many consumers, that’s exactly what happens.

Those consumers who have a long history of overspending can receive real help from credit counseling. They have to make sure, though, that they’re going into their counseling sessions with the right attitude. They have to be willing to make substantive changes in their spending habits. They have to be willing to delve deep enough to uncover what causes them to spend money that they don’t have.

This is far from an easy process. Most U.S. consumers don’t feel comfortable talking about money or debt, and they especially don’t feel comfortable talking about their own overspending problems.

However, a debt-repayment program isn’t going to do struggling consumers much good if it doesn’t include some real credit counseling. Consumers need to learn how to use money and credit wisely before they can ever hope to get their finances in order.