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.
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.
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.
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