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