The credit counseling profession has been turned upside down over the past 20 years. When I first started representing clients in bankruptcy cases, we would routinely refer clients to a Consumer Credit Counseling Services of Nebraska if we thought bankruptcy could be avoided.
Unfortunately, CCCSN closed in 2015 and there was no local professional left to send clients to for real credit counseling.
A real credit counselor is a professional who sees beyond the numbers. Behind every financial problem lies a deeper issue: divorce, gambling, drug addiction, mental conditions, business failures and every other disorder you can imagine. To understand a money problem you must first understand the root cause of the problem, and money problems are usually secondary to a larger issue. Real credit counseling professionals have largely disappeared.
What happened? Why did traditional credit counseling die?
Many factors contributed to the death of traditional credit counseling.
- Fair Share compensation drastically declined. Fair is the percentage of a monthly credit counseling payment creditors allow the agency to retain to fund its operation. That percentage declined from 15% to almost zero in recent years.
- Debt Settlement firms have taken over the market. Why? Because their payments are so much cheaper. Instead of paying all the debt back settlement companies falsely claim that debtors only need to pay a fraction of what they owe. They lure clients away with slick advertising and lower monthly payments.
- Technology changes are disrupting every industry these days and only the most tech savvy firms are surviving in any field.
- Consumers cannot distinguish real credit counseling programs (i.e., those certified by the NFCC) from phony agencies that pretend to be nonprofit counselors.
Traditional credit counselors could not contend with dropping revenue, increased competition, and blinding technology changes while consumers became lost in a sea of confusing alternatives.
The bottom 60% of America is lost, losing ground and is in debt.
At the same time real credit counseling has been disappearing, Americans have been struggling to stay in the middle class.
- Few workers receive pension plans today. In their place, workers receive 401(k) Plans that are commonly cashed out as they go from one job to the next.
- Foreign competition and job outsourcing has put a squeeze on wages.
- Relationships are less stable and an increasing percentage of children are raised by one parent.
- Jobs change frequently and once a worker reaches 50 they want you gone due to higher insurance costs.
- Church membership is down and there is a general sense of social dissolution.
The top 40% of America is doing well and they have abundant financial counseling, mostly in how to invest their savings, but the bottom 60%–the people who need financial counseling the most–have nowhere to turn.
It is time to reinvent credit counseling.
The trending term in credit counseling these days is called Financial Coaching. This goes beyond managing a debt repayment plan. Financial coaching is a process of teaching and assisting a consumer to manage their way out of debt and into savings.
How does Financial Coaching differ from Credit Counseling?
- Credit Counselors take possession of client funds to manage debt repayment plans. Financial coaches never take possession of client’s funds.
- Financial coaches do not receive Fair Share payments from creditors, so there are no conflicts of interest.
- Coaching requires regular face-to-face meetings to review progress and to continue education.
- Coaches focus on diagnosis, organization, and educating.
- Coaches teach skills and then make the client implement the payment plans.
- Coaches help set short-term and long-term financial goals.
- Credit Counseling is about managing a payment plan. Financial Coaching is about a relationship.
- Credit Counseling normally requires a large corporate organization to manage plans. Financial Coaching is a profession operated by independent actors.
The opportunity going forward is to build a network of professionals who gradually guide clients out of debt and into savings while teaching life-long skills and awareness that changes peoples lives.
Technologies like Zoom and Teams and Google Meet allow us to break through geographic boundaries and to share information like never before. We can share files and calendars and spreadsheets and video calls without leaving our homes. It is now possible to create a financial classroom with one-on-one counseling at virtually no cost.
It is possible for a single financial coach to guide 100 or more families out of debt and into savings. A modest monthly fee will support the compensation necessary to support this new profession. As a bankruptcy attorney I personally manage hundreds of cases through 5-year chapter 13 payment plans, and a financial coach with 20 working days in a month can easily meet with 100 clients monthly by conducting 5 meetings per day.
Do the math. I recently reviewed a new client’s debt payment program with a credit counselor. She was paying nearly $150 per month to have them manage a plan that was going nowhere. No real credit coaching was taking place. If a trained financial coach could guild 100 clients out of debt and out of the ignorance of thinking like a poor person, they would earn a very decent living.
So, it is time to build a new network of professions that folks like me can refer clients to for real financial coaching. It’s time to build a brand that is easily recognized as a standard of professional care. The Association for Financial Counseling and Planning Education (AFCPE) is a newer organization moving in this direction.
I know where to send clients to prepare taxes or to fix their car or to have their lawn cut, but I don’t know a single individual who takes on personal credit counseling matters. If someone asks me for a lawyer referral I give them the lawyer’s name, not their firm’s name. I know of credit counseling agencies who help with debt problems, but not a single human being who does. It’s time to change that.