Credit Counseling: In Person, by Phone or Online

Millions of American consumers are in debt, but only a fraction of them seek credit counseling each year. According to field experts, it is difficult to convince consumers to use credit counseling services before it's too late. "If I'd only known…" is a refrain credit counselors hear all too often.

Nick Jacobs, of the National Foundation for Credit Counseling, says many people are afraid to contact creditors or a counseling agency when they start having debt problems. He hopes that the increased availability of telephone and Internet counseling will encourage consumers to seek counseling earlier.

In addition to in-person assistance, most credit counseling agencies now offer this service over the phone. Internet assistance is also available but is not as widely used. David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, explains that phone interaction with a trained counselor is key to a good result.

Phone vs. In-Person Counseling

A recent study by Georgetown University's Credit Research Center finds that telephone and face-to-face counseling can be equally effective and appear to generate equivalent outcomes for consumers' creditworthiness two years later. (Internet counseling was not included because it was not consistently defined by agencies at the time of the study.)

The research also points out that "the credit profile of borrowers who choose face-to-face counseling is different from borrowers who use telephone counseling. It appears that consumers may be self-selecting into different delivery channels based on their perception of the severity of their financial problems." The consumers who were counseled in person generally faced greater debt and credit problems than people who sought help over the telephone.

This outcome is what credit counseling agency representatives are hoping for—that making counseling more accessible via the telephone or Internet will encourage consumers to seek help earlier.

"This is good news," says Bettye Banks, senior vice president at Consumer Credit Counseling Service of Greater Dallas. "The sooner they call, the more options they have."

The complete study, "Evaluating the Effectiveness of Credit Counseling, Phase One: The Impact of Delivery Channels for Credit Counseling Services," by Michael E. Staten and John M. Barron, May 31, 2006, is available online at www.consumerfed.org/pdfs/Credit_Counseling_Report061206.pdf .

e-Perspectives, Volume 7, Issue 3, 2007

Federal Reserve Bank of Dallas Community Affairs Office P.O. Box 655906, Dallas, Texas 75265-5906 214-922-5377
Gloria Vasquez Brown Vice President		Alfreda B. Norman Assistant Vice President and Community Affairs Officer
Jackie Hoyer Houston Branch Senior Community Affairs Advisor		Julie Gunter Senior Community Affairs Advisor
Wenhua Di, Ph.D. Community Affairs Economist		Elizabeth Sobel Community Affairs Specialist
Roy Lopez Community Affairs Specialist
The views expressed are the authors' and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Affairs Office.

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Credit Counseling: In Person, by Phone or Online

Phone vs. In-Person Counseling

e-Perspectives, Volume 7, Issue 3, 2007