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Debt Relief industry Trends, June, 2011 – Credit Counseling, Debt Settlement, Bankruptcy

In what has turned into a regular report from this site, here is the next installment in my forecast for the debt relief industry.

The extension of consumer credit remains weak. Delinquencies and defaults are dropping and sometimes, as Discover announced recently, to historic lows.

Credit Counseling Demand

Sources inside credit counseling are reporting continued declines in new debt management clients and an erosion of the current client base. Without new debt management clients to replace the old enrollments the total number of active clients will decrease through graduation of dropout.

Search volumes appear to continue to drop faster for debt settlement but credit counseling searches, an indication of consumer interest, is flat as well.

Still, the most disturbing observation for me was the relatively low uptick following the start of the new year.

The graphic below show the volatility in credit counseling search traffic in the December-January timeframe. The higher the demand after Christmas, the more activity credit counseling groups should expect. This classic heartbeat in credit counseling demand has been a regular occurrence.

And not only was the demand peak much, much smaller at the start of 2011 but overall the demand has dropped from that point. We are just entering a time when demand may increase slightly as we near the end of the summer.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

As you can see from the trend below, the overall search demand for credit counseling has continued a downhill slide.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

The chart above may even indicate a bump in search demand during the period of time that debt settlement was heavily advertising their niche. in the 2009 time range.

A closer look over the last 12 months can be seen below.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

Debt Settlement Demand

The demand for debt settlement services continues to show a faster decline when you compare the scale of the search traffic measured. The debt settlement chart shows a greater volatility.

The search traffic indicates to a lesser organized degree the same end of year demand jumps with the largest appearing at the end of 2009.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

As you can see in the graph below, the demand for debt settlement searches peaked in mid-2009 and has declined ever since. (Red Line)

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

If we look at the brown line as an indicator of demand from first measurements to present and we did with the credit counseling traffic charts you can see how search traffic might even be slightly lower than when it first was high enough to measure.

Here is a look at search demand for debt settlement for the past twelve months.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

When we compare the search traffic demands by overlaying the charts for debt settlement search traffic and credit counseling you can more easily see the 2009 demand spike for both debt settlement and credit counseling. If anything, it is entirely possible that the influx of massive debt settlement advertising helped to boost up credit counseling demand through 2009 but the search demands for both solution fell off at a similar slope from that point.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

For me this is an excellent indication that debt settlement did not kill credit counseling. If it had then the search interest in credit counseling would have fallen at the same time that debt settlement was increasing but the data shows both falling at the same time.

Chapter 7 Demand

I’m using Chapter 7 search results as an indicator of bankruptcy demand since 70%+ of all consumer bankruptcies are Chapter 7.

The demand for Chapter search in search traffic has been inconsistent for the past year or so. It has not maintained a steady trend.

If we compare the search demand over the life of the measurements it shows the decrease in demand following 2005 bankruptcy reform but the increase in demand once we hit the end of 2008. This may have resulted in more attorneys getting into bankruptcy which may have created a glut in providers.

If I lay bankruptcy search traffic on top of that for credit counseling and debt settlement you can see how the interest in search traffic for bankruptcy began later but did mirror in the first half of 2010. But, if anything, it appears that current declines in both credit counseling and debt settlement search traffic is not mirrored by search demand for bankruptcy. That traffic has increased as the others have declined.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

It appears that search traffic for bankruptcy is stronger of that for both debt settlement and credit counseling. This may be due to the fact consumers feel they do not have enough income to enter any debt repayment strategy and instead are looking for greater relief.

This is chapter 7 traffic for the last twelve months. While there are some peaks and valleys it certainly appears in more of a plateau.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

Other Factors

Unemployment has been a large factor in the demand for debt relief services. As you can see the growth in debt relief services in 2009 began as unemployment rates were increasing and as they were sustained at high levels the consumers ability to continue debt repayment programs has dropped while bankruptcy demand has more closely followed the unemployment trend.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

If we look at the amount of revolving consumer credit outstanding it becomes clear there is a correlation between the amount of outstanding unsecured consumer debt and demand for credit counseling and debt settlement.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy

This leads me to postulate that until the levels of unsecured consumer credit begin to rise the demand for credit counseling and debt settlement will continue to be flat. As long as unemployment continues to be high then bankruptcy levels should be expected to remain high until consumers have dealt with their lingering debt in the face of weak employment.

Conclusion and Recommendations

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, BankruptcyBoth credit counseling and debt settlement companies should cut staff back to bare minimums to hope to ride out this decline in demand. Until sufficient numbers of debt relief companies close, the cost of client acquisition should remain high as the remaining companies compete for a smaller customer pool.

The current effort by credit counseling to continue to attack and erode debt settlement providers and solutions is tremendously shortsighted. At a time when credit counseling could be working to expand their solutions and client base with new opportunities they are instead focused on closing down the debt settlement industry in hopes it will increase demand for credit counseling. I believe it will have the exact opposite impact and as longer as the debt management plans provided by credit counseling do not provide serious relief for struggling consumers, choking off debt settlement will only help bankruptcy attorneys.

Debt Relief industry Trends, June, 2011   Credit Counseling, Debt Settlement, Bankruptcy
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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.
  • Alex Viecco

    Steve,
    I find this information interesting from a realistic standpoint.  We have all seen the banks pull back the lines of credit therefore reducing the potential for consumers to get in trouble, but one thing is for sure, after spending 17 years in the banking world, the one thing I can tell you is that the cash machine called “credit cards” WILL NOT go away.
    There will be some new way of offering them to the ‘Subprime” consumer at a premium and the funds will become more available for consumers to get in trouble.
    Many people are looking at this as a tragic thing for this industry but in my opinion, it is simply the natural process of a correction in the market.  Let’s all face the facts, this industry needed to have a “cleansing” and some good things will be affected in the process, but the benefit is that a better industry will remain for both the companies and the consumers leaving only the legitimate players to service the consumers.
    The banks will be more apt to operate like they did back in the late 90′s early 2000′s.  The sudden increase in companies in the last few years and the lack of delivering results will be corrected and a better industry will emerge and one that will regain the consumer confidence.
    As you have stated we need to just adjust our business models to make it through the flush and have an opportunity to be the companies left to do terrific work for consumers in need.
    Alex

  • http://www.NewEraDebtSolutions.com Alex Viecco

    Steve,
    I find this information interesting from a realistic standpoint.  We have all seen the banks pull back the lines of credit therefore reducing the potential for consumers to get in trouble, but one thing is for sure, after spending 17 years in the banking world, the one thing I can tell you is that the cash machine called “credit cards” WILL NOT go away.
    There will be some new way of offering them to the ‘Subprime” consumer at a premium and the funds will become more available for consumers to get in trouble.
    Many people are looking at this as a tragic thing for this industry but in my opinion, it is simply the natural process of a correction in the market.  Let’s all face the facts, this industry needed to have a “cleansing” and some good things will be affected in the process, but the benefit is that a better industry will remain for both the companies and the consumers leaving only the legitimate players to service the consumers.
    The banks will be more apt to operate like they did back in the late 90′s early 2000′s.  The sudden increase in companies in the last few years and the lack of delivering results will be corrected and a better industry will emerge and one that will regain the consumer confidence.
    As you have stated we need to just adjust our business models to make it through the flush and have an opportunity to be the companies left to do terrific work for consumers in need.
    Alex 

  • Jay

    this may be true in some pockets of the country and the creditors may take this position with some debtors but I have to believe that for the “vast majority” of american debtors whose debt is overwheming but who are still employed debt relief is very much needed…stats may be down but the need for debt help is still “very high” as compared to the overall population and the number debt relief service providers has shrunk, there is good opportunity for the savy business person in debt relief and many recognize this, we have heard from people commenting on this website that the timing to get started in debt relief is now. They see a positive when others can only see the negative.

  • Jay S. Fleischman

    Steve, the stats are chilling.  Some say that there is less debt out that, but my experience is that more people just don’t have the financial ability to make any payments whatsoever.  Without an income, they can’t use credit counseling effectively.  In addition, their ability to file for bankruptcy is compromised because they can’t afford to pay the legal fees.

    For many, there’s a “why bother?” mentality going on.  Some areas have reported a steep decline in credit card lawsuits, with lenders merely decided not to institute legal proceedings because they know the consumer population can’t afford to pay.  This seems to be true in areas like Florida, where unemployment and foreclosure rates are high.

    Given the lack of enforcement coupled with a lack of money, some consumers may have less of a reason to take any action to resolve their debts.

  • http://www.consumerhelpcentral.com Jay S. Fleischman

    Steve, the stats are chilling.  Some say that there is less debt out that, but my experience is that more people just don’t have the financial ability to make any payments whatsoever.  Without an income, they can’t use credit counseling effectively.  In addition, their ability to file for bankruptcy is compromised because they can’t afford to pay the legal fees.

    For many, there’s a “why bother?” mentality going on.  Some areas have reported a steep decline in credit card lawsuits, with lenders merely decided not to institute legal proceedings because they know the consumer population can’t afford to pay.  This seems to be true in areas like Florida, where unemployment and foreclosure rates are high.

    Given the lack of enforcement coupled with a lack of money, some consumers may have less of a reason to take any action to resolve their debts.

    • Jay

      this may be true in some pockets of the country and the creditors may take this position with some debtors but I have to believe that for the “vast majority” of american debtors whose debt is overwheming but who are still employed debt relief is very much needed…stats may be down but the need for debt help is still “very high” as compared to the overall population and the number debt relief service providers has shrunk, there is good opportunity for the savy business person in debt relief and many recognize this, we have heard from people commenting on this website that the timing to get started in debt relief is now. They see a positive when others can only see the negative.

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