I have a friend who has $18K in credit card debt and makes $25K a year. I think this person needs help, and I've thought about recommending credit card counseling. However, I've also read articles and personal stories from people saying they don't work.
When does credit card counseling work? Should I recommend my friend go to one?
They certainly need help. But like any kind of help, if the person getting help doesn't want it, then it won't do anything.
A person can't live on credit forever. Does their money problem stem from some sort of addiction?
You can't fix them, you can only support them emotionally (to the point where you start to suffer as well, then you need to be ready to cut your ties.)
The article you link to specifically mentions that people who ask for counseling are of three kinds: those who only need one session, those who are beyond help (and who really should file for bancrupcy), and those who actually participate in long-term counseling. The "rather low" success rate is only counted for the latter category. It even ignores the first category.
Which as I see it means that... Your friend has a chance to get into the "beyond help" category if he doesn't get help ASAP. Of course counseling will require a serious effort from him to change his money management patterns, but I don't see how counseling could hurt.
Incurring debt is easy - just go sign for a loan. Managing debt is much harder, and anything which requires effort has some dropout rate. So those claims that it just "doesn't work" should not by themselves make you think counseling is useless.
The credit counseling will only work if your friend is open to it, i.e.: your friend understands that he/she needs it. But then he doesn't really need a formal "credit counseling". What he needs is to understand that he needs the credit counseling.
Admitting that there's a problem is half way to the solution of the problem. Once they admit they're in trouble and understand what the trouble is (and the trouble is them), then the way to the solution is paved. But that's the hardest part.
No counseling will work if your friend doesn't accept the fact that he/she needs it to begin with.
Credit counseling services main tool to help people is the debt management plans (DMP) they offer (other than the free educational resources non profit credit counseling agencies provide).
Your question about when credit counseling works is best answered in two parts:
You must be able to mathematically qualify for a debt management plan. The current monthly payment average on a DMP is 2% of the combined balances on the accounts accepted into the plan. Can your friend afford 360.00 each and every month and keep that commitment going without fail for the next 4 to 5 years? If so, it could be a good plan. The cards get closed and your friend will have to live with in a budget with no real access to new unsecured credit.
Credit counseling has a roughly 25% success rate for the debt management plans these companies enroll people into. Those are pretty poor performance numbers. The main reason for the drop out rates is the inflexible nature of the plans. Qualifications for the plans generally leave little discretionary income that helps save for emergencies. Life happens at every turn, and that can mean unexpected expenses. If your friend has a steady and dependable income and is willing to change their attitude and relationship with money and spending, a DMP has a higher likelihood of succeeding.
2% of enrolled balances as a monthly payment is the first hurdle to clear.
Consulting with a credit counselor to see what type of plan can be put together (if at all) is generally free. So, recommending speaking with one is not going to hurt, or cost anything. If a DMP cannot be offered, at least that option can now be eliminated from the short list of available options for debt intervention.
