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Federal Reserve Data Points Out Less Need for Debt Relief Providers

In a couple of recent articles, here and here, I talked about the declining demand for debt relief services, al all types, when looking at search traffic data.

Demand for debt relief services is created when lenders extend and consumers get overloaded and need to seek a remedy for the growing burden of debt. If lenders don’t extend credit there is going to be less of a demand for debt relief providers.

A recent Wall Street Journal article by Mark Whitehouse points out further evidence why the debt relief service provider market is seeing less demand.

From the recent Federal Reserve Data Whitehouse discovered that while there has been a $822 billion reduction in consumer debt it is not the result of consumers becoming better money managers. It is the result of bank charge offs.

Prior to 2008 consumers were adding debt at about a 10% annualized rate. That was good news for debt relief providers. But from 2008 to 2010 consumers have added debt at only a 0.5% annualized rate. That’s horrible news for debt relief providers.

Consumers appear to have more room to take on debt. Current debt service ratios, the ratio of debt payments to disposable personal income, was at 11.75% 2010 Q4. The last time it was that low was 1998 Q1 (A) before creditors went crazy extending easy credit. The peak was 13.95% in 2007 Q3 (B). and it has been a downhill slide since then.

Federal Reserve Data Points Out Less Need for Debt Relief Providers

The last time it was around the current percentage was 1991 Q1 (C) which marked the economic recession we experienced in the late 1980s that led to my own bankruptcy filing in 1990. That point at C was not yet the bottom, just a point on the decline to continue.

After that economic decline, where the bottom was reached in 1993 Q4 at 10.73% (D) it took 14 years of easy credit to reach the peak demands experienced by debt relief providers in 2008 and 2009.

For debt relief providers the demand for services is going to continue to shrink as long as the lenders don’t loosen up and begin extending credit easily again. The pool of potential clients for debt relief services is just continuing to get smaller every single day as the amount of time passes from the peak at B.

Once banks begin to loosen up again and start to extend easier credit it should take an additional year or two before the demand for debt relief services begins to increase again from the bottom, whenever that occurs.

Until then we should expect to see a further reduction in the number of viable debt relief providers as the market consolidates due to the lessening demand.

Federal Reserve Data Points Out Less Need for Debt Relief Providers
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Guest

    private sector
    responsibly
    customer in mind

    haha! Good one, Alex.

  • AlexV

    Let’s not fool ourselves. If history has taught me something, it is that History repeats itself.
    I am EXTREMELY confident that the creditors will be issuing easy credit again in the near future, Why?
    They make a ton of money doing it. Sure right now the volume of people needing debt relief providers has slowed down considerably. That is a good thing to allow for some regulation and an opportunity to clean up the industry. But if we think the need for these services will go away, we are simply fooling ourselves.
    The industry will hopefully re-invent itself in a positive way, but I can tell you banks will not likely change too much. Who are the ones that received Government Funds? How much of those funds trickled down to the end consumers?
    Has anyone seen many simple note modifications? or any real consumer help, to help people keep their homes?
    Banks tend to be the biggest hypocrites, they say one thing and yet lobby for something else with very few consequences. Let’s not fool ourselves, the deep pockets will always have a bigger voice.
    I am confident that as all of the legislation begins to gain momentum, in many instances the great intentions will end up painting consumers into a corner and leave them with yet fewer options.
    My believe is that consumers need option and real solutions to absolute problems they are facing, we cannot leave it to the government to assist them, so it is up to the private sector to step in, responsibly and with the consumer in mind 100% of the time.
    Alex Viecco
    Vice President/Co-Founder
    New Era Debt Solutions

  • http://www.neweradebt.com AlexV

    Let’s not fool ourselves. If history has taught me something, it is that History repeats itself.
    I am EXTREMELY confident that the creditors will be issuing easy credit again in the near future, Why?
    They make a ton of money doing it. Sure right now the volume of people needing debt relief providers has slowed down considerably. That is a good thing to allow for some regulation and an opportunity to clean up the industry. But if we think the need for these services will go away, we are simply fooling ourselves.
    The industry will hopefully re-invent itself in a positive way, but I can tell you banks will not likely change too much. Who are the ones that received Government Funds? How much of those funds trickled down to the end consumers?
    Has anyone seen many simple note modifications? or any real consumer help, to help people keep their homes?
    Banks tend to be the biggest hypocrites, they say one thing and yet lobby for something else with very few consequences. Let’s not fool ourselves, the deep pockets will always have a bigger voice.
    I am confident that as all of the legislation begins to gain momentum, in many instances the great intentions will end up painting consumers into a corner and leave them with yet fewer options.
    My believe is that consumers need option and real solutions to absolute problems they are facing, we cannot leave it to the government to assist them, so it is up to the private sector to step in, responsibly and with the consumer in mind 100% of the time.
    Alex Viecco
    Vice President/Co-Founder
    New Era Debt Solutions

    • Guest

      private sector
      responsibly
      customer in mind

      haha! Good one, Alex.

  • Joedaddy

    Not really

  • Sgoyle

    can you explain the $800B? creditors still try to collect on charged off debt so isn’t this $800B still in play for what debt relief services?

    btw– what i hear from debt relief providers is the prolonged depression in employment. people can’t afford debt relief and are more likely to pursue bankruptcy.

  • Sgoyle

    can you explain the $800B? creditors still try to collect on charged off debt so isn’t this $800B still in play for what debt relief services?

    btw– what i hear from debt relief providers is the prolonged depression in employment. people can’t afford debt relief and are more likely to pursue bankruptcy.

  • Robert Stevenson

    interesting…

  • Robert Stevenson

    interesting…

    • Joedaddy

      Not really

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