Two Charts That Explains Why Debt Relief Companies Are Not Swamped

The bread and butter of the consumer debt relief industry have almost always been unsecured debt, specifically credit card debt.

But these two charts show the rapid progression of debt that impacts the demand for unsecured debt relief services.

In the categories below, housing debt is the largest and fastest-growing category. Yet the Mortgage Assistance Relief Services Rule (MARS) has landed so many companies in hot water. Here is one past example of regulatory action by the CFPB and FTC jointly. The restriction of the mortgage assistance niche really grew after the housing bubble implosion of the Great Recession that started in 2007.

Housing Debt Climbing

As you can see in the chart above, credit card debt balances are relatively flat. Both auto loans and student loans are growing at a faster balance level.

Both of those sectors have been problematic for the debt relief industry. With auto loans, there are limited options since they are loans secured by the car. The lender holds the power. With student loans, the federal student loan assistance space has been and will continue to be the target of the Federal Trade Commission and other regulators. Here is one of the actions from 2017 but they continue to this date.

The more depressing chart for debt is the one below that shows the percentage change in total household debt for inflation.

Debt Adjusted for Inflation

This gives you a more granular view of the growth and opportunity in the credit card space for assistance.

The chart makes it explosively clear why student loans are a terrible problem for consumers. The trend is rocketing upwards yet the options for dealing with the debt are limited. The good news is there is some movement in the ability to deal with student loan debt. But those inroads have been in the area of student loans and bankruptcy.

Private student loans have more opportunity to be dealt with through settlement or the court but federal student loan debt makes up most of the debt in the student loan space. Debt relief companies selling federal student loan assistance are still on the radar of regulators.

In March of 2020, I wrote The Coronavirus Might Just Kill Your Finances Before It Kills Anyone You Know and I’m just about to post with new information. But the fallout from the pandemic is going to create large groups of consumers in trouble, but the primary categories of debt by balance are going to be outside the safe intervention of debt relief companies.

If history repeats itself, I would expect new fly-by-night debt relief companies to emerge in an attempt to jump back into the mortgage modification and foreclosure assistance niche when consumers fall off the cliff. This will result in yet another negative impression of the debt relief space.

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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.
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