As credit cards gained in popularity, so did credit card problems. Creditors began facing mounting debt write-offs as more and more accounts were turned over to collections.
In order to reduce losses and to avoid alienating their customers, credit card companies created the credit counseling industry.
At first, the credit counseling industry was controlled by the credit card companies themselves. They provided most of the funding and served on the Board of Directors at each organization. They could see first hand that there was a need to provide relief to debtors that had committed to repaying debt without turning to bankruptcy.
Credit card issuers began providing debt relief primarily by providing lower interest rates on their accounts. This reduced the cost for debtors to finally get their debts paid and also served as an incentive for debtors to commit to a debt management plan. They saw the educational value of credit counseling and were convinced that it would help make debtors smarter consumers.
Credit card issuers want their cardholders to understand the importance of maintaining a good credit rating and living within their means. Their service is one of convenience that provides cardholders with a way of funding emergency spending and of easing financial transactions. Credit cards are not a tool for correcting a negative budget. Credit counseling provides the information to help debtors correct their spending habits.
Creditors Support Credit Counseling Agencies
Ever since the early 1980s, credit counseling agencies began using more technology to improve customer service and to speed up payment processing. Credit card companies encouraged this by providing additional financial support to agencies that utilized electronic payment systems. Agencies were encouraged to utilize the means to improve a customer’s experience and to reduce costs for creditors.
Even though credit card executives no longer maintain a presence on these nonprofit boards of directors, they still provide support in the form of educational curricula and direct financial support. The goal is to reduce the share of the service that debtors must pay for.
Creditors Provide Direct Benefits
Credit card issuers further support credit counseling agencies by providing benefits to program participants that would not normally be available otherwise. Sure you can earn a lower interest rate if you have excellent credit and high income, but you typically cannot if you are struggling to pay more than the minimum payment each month.
Credit card issuers want you to recover enough to avoid default, and they are willing to reduce their short-term interest earnings in order to recover the entire balance. Otherwise, they lose money if you default.
Credit card providers are not just being nice when they lower your interest rates on a debt management plan. They are also protecting their interests by reducing their risk. Debtors and creditors alike benefit when credit counseling agencies are able to help financially distressed consumers recover from high debt balances.
Is there anything in it for creditors? Sure there is. Fortunately, credit counseling is a means for resolving outstanding debt problems for you and your creditors. After all, when you avoid default, everyone wins.