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Credit Counseling Reduces Financial Stress, April 18, 2002. InCharge Institute of America

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Orlando, FL, April 18, 2002-InCharge® Institute of America, Inc. announced today that financially distressed consumers who stayed on a debt management program with a non-profit credit counseling organization found that their financial lives improved substantially. These formerly financially distressed consumers report 18 months later that their level of satisfaction with their current financial situation increased a whopping 25 percent.

Clients reported decreases in the incidence of financial stressors such as receiving overdue notices (down 55 percent), telephone calls from creditors (down 54 percent), calls from bill collectors (down 60 percent), and writing a check with insufficient funds (down 43 percent). Overall, clients report that their personal finances improved.

Such decreases in financial stressors "are a sharp improvement in people's lives," says Dr. David C. Jones, President and CEO of InCharge Institute. Cooperating creditors, such as the banks and credit card issuers, deserve some of the praise. A debt management program allows consumers overwhelmed by financial problems to repay their creditors and get out of debt faster than normal. This is because of special concessions creditors give to them in the form of lower interest rates, elimination of late fees, and bringing their credit accounts up to date. In 2001, clients of ProfinaSM Debt Solutions, InCharge Institute's non-profit credit counseling organization, returned $175 million to creditors from consumers who might otherwise have gone bankrupt.

Most important is that active clients report they are now taking positive actions to improve their financial futures. Fifty-one percent have figured out how much money they need to have at retirement and 58 percent have begun contributing to their retirement plan at work. Thirty-one percent are saving money by voluntarily participating in an employer's pre-tax health and dependent care plans. "An illustration of the wisdom of employer-sponsored pre-tax plans is that a worker who this year pays $3,000 in dependent and/or health care expenses can avoid paying $800 a year in income taxes and instead use those dollars for health and dependent care," says Dr. Tom Garman, Distinguished Scholar at InCharge Institute.

Other indicators of clients taking active charge of their financial futures include a 74 percent decrease in the incidence of cash advances on credit cards as well as a 66 percent decrease in using a cash advance to pay another creditor. Active clients also reported a 44 percent reduction in writing bad checks with insufficient funds in their accounts. Thirty-six percent reported having enough money for emergencies. Jones says that, "Credit counseling helps reduce stress about money matters, plus it also helps prepare people to do better financially in the future." In short, says Benoit Sorhaindo, InCharge Institute Senior Researcher, "Credit counseling works for a lot of people!"

The study consisted of a three-group panel. One group was comprised of active credit counseling clients. Another consisted of those who dropped out of a debt management program, and a third was a control group. All three groups reported positive changes over an eighteen-month period in their financial behaviors. However, active clients reported larger changes than the other two groups.

To illustrate, while the proportion of active clients responding positively to the question on the development of a financial plan rose 32 percent, the control and dropout groups reported changes of 28 percent and 24 percent, respectively. When asked if they followed a budget, the changes were 28 percent for the active group, 26 percent for the control group, and 12 percent for the dropouts.

Asked whether they reduced personal debts, the active group was associated with a 17 percent improvement in those answering affirmatively compared to 15 percent for the control group and a reduction of 12 percent for the dropouts. Generally, people who dropped out of the debt management program fared the worst, as their personal finances continued to decline, and at least 10 percent of them declared bankruptcy.

The sample is representative of clients of ProfinaSM Debt Solutions (Profina.org). The average monthly income for Profina clients is $2,300, average age is 37, average number of unsecured credit accounts is 7, and the average unsecured debt enrolled in the program is $13,000. Sixty-five percent cite "overuse of credit/over extended" as their reason for joining a debt management program.

The population for the study was 4,000, the sample was 1,800, and the return rate for the sample was 25 percent. Over 70 percent of the people participated in the panel study for 18 months. Sixty percent were females and 40 percent were males. Most were within the age grouping of 26 to 39 years.

In summary, clients in the debt management program for 18 months are better off financially than those similarly situated consumers who either dropped out of credit counseling or were in a control group.

Headquartered in Orlando, Florida, the InCharge® Institute of America, Inc. is a national non-profit organization specializing in debt management, credit counseling and financial wellness programs. InCharge Institute publishes Young Money magazine and offers basic financial management education to clients and the general public. For additional information, visit InCharge.org.

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