NEW YORK – Telephone credit counseling appears to be as effective as face-to-face counseling in improving consumers’ debt management skills and risk profiles, according to a study released last week.
The study also found that consumers who entered debt-management programs, which are set up by counseling agencies to help consumers consolidate and pay down debts, had better credit performance records two years later.
Michael Staten, head of the Credit Research Center at Georgetown University in Washington, D.C., who co-authored the study, said that trying to identify counseling methods that are effective in changing consumer behavior had “important implications for policy” decisions.
This is especially true since the new bankruptcy law that went into effect last October requires consumers to seek credit counseling before they’re eligible to apply for bankruptcy relief from their debts.
Most counseling is provided by nonprofit agencies, many of which get part of their funding from creditors. The Internal Revenue Service has been investigating agencies and pulling the nonprofit designations of those deemed to be providing inadequate consumer education programs and other public services.
Staten said the study looked at the data of about 60,000 clients of 10 credit counseling agencies chosen for emphasis on consumer education and identification of the underlying cause of their clients’ financial problems. Credit data was supplied by the TransUnion credit bureau, which is based in Chicago.
About two-thirds of the clients were counseled by phone, while about 20 percent had in-person services. The study did not look at the 10 percent of clients who got Internet services.
The study found that “the delivery channel for the initial counseling session appears to have little impact” on subsequent risk measures, including bankruptcy risk scores or account delinquency risk scores.
Staten said, however, that the consumers most at risk appeared to seek out in-person counseling rather than phone counseling.
He said it was too early to determine why consumers who undertake debt management programs do better than those who don’t.
It could be that consumers who do debt management programs are in better financial shape than those who don’t, he said.