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CU System
More distressed consumers are ignoring debts says NFCC
SILVER SPRINGS, Md. (2/8/10)--More U.S. consumers experiencing financial difficulties are ignoring their debts, according to a national poll. The National Foundation for Credit Counseling’s (NFCC) January online poll, which received more than 11,000 responses, revealed that 10% of respondents selected “ignoring their debt” as the first action they would take if in financial distress. This number closely mirrors the current unemployment rate of 9.7% and credit card charge-off rates, NFCC said. “At first glance, the response makes perfect sense,” said Gail Cunningham, NFCC spokesperson. “After all, if you are out of work, you’re worried about keeping a roof over your head and food on the table. However, simply ignoring the situation is possibly the worst possible decision a consumer can make. Not only does it not resolve the problem, it exacerbates it.” The results from the survey, called the Financial Literacy Opinion Index (FLOI), indicated that the largest number of respondents, 38%, said their first action would be to seek help from a legitimate credit counseling agency if they were in financial distress. This shows that consumers are aware that substantive help is available to them, and that they understand reaching out for help sooner rather than later is the first step to take, NFCC said. Since credit counseling and debt settlement are two different options, the survey also tested consumer responses related to debt settlement. Thirty-three percent knew that talking directly to their creditors to arrange a settlement was the right thing to do. However, 14% said that reaching out to a debt settlement company would be their first step--a troubling number, NFCC said. Many state attorneys general, as well as the Federal Trade Commission, have launched investigations into the debt settlement industry, often finding that consumers receive little, if any, assistance from such firms, said the foundation. Personal bankruptcy filings nationally are trending upward. However, only 5% of consumers said bankruptcy would be their first choice if in financial distress. Bankruptcy can be the right answer for some, but other options should be thoroughly considered before opting to file, and consumers appear to understand this, said NFCC. “It can be argued that proper choices are never more critical than when in financial distress. Although it is encouraging that more than two-thirds of respondents knew to seek legitimate credit counseling or reach out to their creditor as their first step, those who chose other options are on a slippery slope, one which could lead to a full-blown financial disaster,” Cunningham said. When asked what their first action would be if they couldn’t manage their debt, consumers answered:
* Ignore the debt(10%); * Seek help from a legitimate credit counseling agency (38%); * Consider debt settlement through a debt settlement company (14%); * Talk directly to the creditor(s) about debt settlement (33%); and * File for bankruptcy (5%).
The Silver Springs, Md.-based organization said more than 200 lenders--many of them credit unions--had signed up with its network to assist consumers in need of financial counseling and education (News Now Jan. 29). For more information, use the link.
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