A wave of consolidation is rapidly transforming credit counseling. It used to be a face-to-face experience at locally based offices that were supported by payments from credit card issuers. Now, counseling is frequently done through large call centers with a nationwide reach, which have a cost advantage and better ties with credit issuers.
"The big agencies are going to get bigger and the small agencies are going to go away," said David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA), one of two associations that represent nonprofit credit counseling agencies.
Whether the trend is good or bad for consumers depends on who's talking, but experts seem to agree on one thing: The drive toward larger counseling agencies with high-tech tools is going to keep going.
"Clearly the face-to-face option is shrinking," said Michael Staten, a professor at the University of Arizona who studies credit counseling. "There are still brick-and-mortar offices out there, but not a lot of them."
It pays to choose a credit counselor carefully: Enrolling in a counselor's payment plan -- referred to as a "debt management plan" or DMP -- is a big commitment. Plans typically run three to five years, so their monthly fees can add up to $1,800 or more. The counselor helps you draw up a budget, arranges reduced interest rates with your creditors and makes payments from a monthly sum that you turn over. Success means freedom from crushing debt and a cleaned-up credit score; failure means continuing to struggle and possibly bankruptcy.
There are other options for help, including debt settlement companies, but nonprofit counseling agencies have become the dominant sources of help for debtors -- partly because creditors such as card companies prefer to work with, and even fund, them.
According to counseling experts, different counseling methods can work for different people. For example, in-person counseling can provide a closer bond and a higher level of commitment.
"We can have identical consumers come to us -- same mortgage, same car payments -- but the family that really buys into it will have six to eight months more on the program," said Christopher Viale, president of Cambridge Consumer Credit. Viale, whose agency does both local and long-distance counseling, said that in-person sessions generate more commitment, with greater rates of success. "It takes 30 to 45 minutes longer ... (but) it is a better session, you see better results," he said.
Weighing against that is a 2011 study by Staten and other researchers, which found that counseling via phone and Internet worked as well as face-to-face sessions. The study looked at debtors' financial health after counseling and corrected for differences in income and assets.
Then there is the big advantage in convenience for the call center experience. Some of the biggest agencies offer 24-hour help via phone or Internet chat. Most have software tools that help you get control of your budget and compare the costs of different interest rates and payment periods.
Gail Cunningham, a former counselor and now vice president of membership and public relations for the National Foundation for Credit Counseling (NFCC), said that people who used to schedule time off from work to see a credit counselor can now get help over the phone during their lunch hour.
Not having to meet the counselor in person can be a big plus for some debtors, who might otherwise put off getting help at all. "Consumers today are not interested in putting all their bills in a shoebox and going down and admitting to someone they can't pay their debt," Jones said. When it comes to discussing their financial troubles, a face-to-face encounter is the last thing many people want.
There used to be some 850 nonprofit counseling agencies, a number that has dwindled to about 295 today after a crackdown by Congress and audits by the IRS, Jones said, citing statistics provided by creditors. While the image of in-person counseling at a small, locally based agency may seem appealing, that approach results in relatively high costs with few people helped, he said.
Today the 10 largest nonprofit counseling agencies channel billions of dollars in repayments to creditors, mainly credit card issuers, and take in a combined revenue of about $400 million. Texas-based Money Management International, the largest agency, has five call centers and more than 128 offices spread over 23 states and the District of Columbia.
Patricia Hasson, president of Clarifi in Philadelphia, said locally based agencies know the community better. Besides standard budgeting advice, local counselors may know where to get help with heating bills or mortgage assistance, even where to find bargains on necessities or a part-time job for extra income.
"It's knowing your local community and the resources that are there," she said. Clarifi, formerly called the Consumer Credit Counseling Service of Delaware Valley, is a regional agency with 13 offices that is branching into housing counseling. Registered in three states, it sees a challenge from larger agencies with a national reach. Creditors that operate nationwide can work more easily with agencies that do the same, she said. But the cost of being licensed in every state is out of reach for all but very large agencies.
Cunningham said that choosing a large agency doesn't necessarily mean opting out of in-person counseling, as many of the majors maintain local branch offices. NFCC members have a total of 750 physical locations, she said.
"We don't consider consolidation a negative at all," Cunningham said. "It should be a benefit to the surviving agency, as well as the one that was rolled in -- as long as the consumer is being well served, it doesn't matter whose name is on the door."