Despite low unemployment numbers and a strong economy in recent years, many Americans continue to struggle with their personal finances. Alarmingly, delinquency rates are rising and total outstanding credit card debt is at an all-time high.
The non-profit credit counseling industry has been a trusted resource for struggling consumers for many years, offering budgeting assistance, helpful education resources and debt management plans to enable consumers to gain control over their credit card debt. The traditional Debt Management Program allows a consumer to pay off 100% of their debt, plus interest, over a 5 year period using a level monthly payment throughout the program. This is an effective way to pay down debt. However, for many struggling consumers the monthly payment is not affordable, even after making changes to their budget.
Unfortunately, for those consumers who could not afford the monthly payment on a Debt Management Plan, the credit counseling industry has until now, had no other programs to offer, leaving a void that was filled by the debt settlement industry.
Banks and the Credit Counseling Industry Collaborate
Over the past year and a half, with guidance and funding from Bank of America, Capital One, Chase and Resurgent, five non-profit credit counseling agencies, representing the National Foundation for Credit Counseling (NFCC) and Financial Counseling Association of America (FCAA), have been developing a new debt repayment program. This new solution is for consumers who have fallen behind on credit card payments, but who are trying their best to avoid bankruptcy.
Current Participants/Supporters Include:
Creditors:
- Chase
- Bank of America
- Capital One
- Resurgent
Credit Counseling Agencies:
- Consumer Education Services Inc. (CESI)
- DMCC
- Greenpath
- Money Management International
- Navicore Solutions
Industry Associations:
- National Foundation for Credit Counseling (NFCC)
- Financial Counseling Association of America (FCAA)
The Debt Reduction Program (DRP)
Features of the new program, known as the Debt Reduction Program, or DRP:
- Allows consumers to pay back 50% of their debt over 36 payments with the remaining balance forgiven after the last payment is made.
- Applies to charged-off accounts only.
- Is designed to be very simple, by allowing consumers to pay back all of their creditors at the same time, while saving the cost of Third Party commission rates and potential Legal collection expenses.
The five participating credit counseling agencies began offering consumers the opportunity to enroll in the program in late February and consumer interest in the program is rising. The DRP is designed to allow consumers to reach agreement with all of their creditors at once, from the start of the program. Consumers do not need to accumulate funds before making settlement agreements with their creditors. This will reduce the collection efforts that are costly to creditors and stressful for consumers. In fact, consumers are encouraged to maintain open communication with their creditors, rather than creating barriers through cease and desist letters.
The value of the DRP for consumers will grow as more creditors join the program. At this point, the pilot group is looking for: interested consumers, expanded creditor participation and feedback from government agencies or other 3rd parties.
For more information about the DRP, please contact Phil Getz of Navicolre or JohnFisher of Money Management International.
About Consumer Education Services
Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve. CESI helps consumers achieve financial freedom by offering a complete life cycle of services including: credit counseling, debt management, housing counseling, student loan solutions, financial education and pre/post-bankruptcy counseling. For more information, please visit cesisolutions.org.