Credit counseling--via phone or face-to-face--helps debtors

by Center for Personal Finance editors

NEW YORK (6/27/06)--When it comes to improving how you manage your debt, credit counseling done over the telephone appears to be as effective as face-to-face counseling, according to initial research on the effectiveness of consumer credit counseling (Consumer Federation of America June 12).

The first phase of research on the topic was released last week and focused on the experiences of 60,000 clients counseled during 2003. The Consumer Federation of America partnered with American Express to identify the best credit counseling practices, and the research was conducted by the Georgetown University Credit Research Center.

The research follows on the heels of the Bankruptcy Reform Act of 2005, which requires bankruptcy clients to receive credit counseling.

Key research findings were:

The act of seeking credit counseling is a valuable early warning indicator of financial trouble; Telephone and face-to-face delivery of credit counseling appear to generate similar outcomes; and Creditworthiness improved for debt management plan participants.

Two years after credit counseling, individuals who experienced face-to-face counseling had similar outcomes�or creditworthiness�as those who participated in telephone counseling (BusinessWeek.com June 12). Researchers warned, though, that the two delivery methods aren't necessarily equally effective for all debtors.

Also, the sooner delinquent borrowers get help, the better. Individuals who attend counseling sessions are forced to come face-to-face with their financial situation, and effective credit counseling can focus resources to help improve the debt situation.