Separation or divorce, unemployment, underemployment, disabling illness and/or excessive medical bills. All of these are common reasons as to why consumers get into debt over their heads. But perhaps the commonest reason of all is simply an inability or unwillingness to properly manage money.

"Few adults have been taught how to manage money," notes Vicki Jacobson, Vice President and director of education for the Consumer Credit Counseling Service (CCCS) of the Mississippi River Valley (St. Louis, Missouri). "They've never learned to set financial goals, create a budget, track their spending, and so on."

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

In fact, Jacobson has known consumer debtors who were spending up to $700 a month beyond their income. "When our clients take pencil and paper to their finances, many of them are astounded to find out how they are living," she explains. "They've just never taken the time to figure out how much they are earning versus how much they are spending."

CCCS Services

When a consumer calls the CCCS for assistance, the first thing the office does is determine what kind of assistance the consumer is seeking.

"We want to get to the root of the problem and help them get a handle on their debt situation," she says.

While CCCS offices provide numerous services, most can be categorized into three areas:

• Debt counseling services.

• Debt repayment programs.

• Financial education programs

Debt counseling.

"We provide budgeting and debt management counseling services," continues Jacobson. "We help clients establish budgets and provide them with additional money management education."

Debt repayment.

The CCCS office then encourages the client to work together to set up a debt repayment plan, called a CCCS Debt Management Program, but doing so it ultimately at the client's option. It is not required.

If the client agrees, CCCS:

1. Arranges for the client to discontinue the use of credit for the duration of the program. "This is the single most important part of the program," emphasizes Jacobson. "We help consumers begin to live within their means. They can't get out of debt if they continue to add debt. Consumers surrender their credit cards, which is often a very sobering moment for them, as well as an excellent learning experience. Once they learn to live within a spending plan, they can begin to get out of debt."

2. Acts as an intermediary for the client and contacts the client's unsecured creditors to see if they would be willing to work with the office and the client to create a mutually-agreeable repayment plan. "We try to negotiate lower monthly minimum payments for the consumer and, if possible, arrange for the creditors to either eliminate or reduce their finance charges until the current debt is paid off."

3. Sends proposals to the clients" creditors who will hopefully agree to accept the repayment program. If so, the CCCS client then sends monthly payments directly to the CCCS office, which disburses them back to the creditors.

"If a consumer fails to make two consecutive monthly payments to us, we can drop them from the program," she continues. "However, since creditors have agreed to lenient terms, we encourage them to stay in the program, because it is to their benefit." If a client does default, the creditors are then free to pursue any action they consider appropriate to try to recover the remaining debt.

Creditor Contribution and Financial Education.

What does the CCCS service cost the consumer and the creditor? That depends. Many CCCS agencies provide their services 100% free of charge to consumers. Others who are not in a financial position to do so may charge a nominal fee for initial credit counseling ($10 to $20) and/or a nominal monthly fee for participation in the Debt Management Program. The Mississippi River Valley agency is currently 100% free of charge to consumers and plans to continue this policy into the foreseeable future.

Are there charges to creditors? Not directly, but CCCS offices request that creditors make a fair-share contribution equal to 15% of the funds disbursed to them, if possible. In fact, these fair-share contributions are the primary funding sources for the agencies. The contributions pay for the facilities, staffing, counseling services, and the CCCS educational programs.

A major element of CCCS services, in fact, is its commitment, to education. "We want to prevent credit and collection problem' before they occur as much as possible," explains Jacobson. Most agencies have educational programs for students in grade school and high schools and also provide seminars for teachers.

Creditors, for the most part, are quite willing to support CCCS agencies, particularly those who benefit from the Debt Management Programs. "Receiving payments via this program eliminates creditor expenses associated with the alternatives third-party collections, attorney fees, and bankruptcies," notes Jacobson. "And when these customer get back on their feet, they'll begin doing business with you again--profitable business."

Note:

Currently, there are approximately 200 CCCS regional agencies in the U.S., which oversee approximately 1,100 local offices. All CCCS agencies are affiliated with an umbrella organization, the National Foundation of Consumer Credit, which was established in the early 1950s. One of the agencies, the CCCS, which has 28 offices in five states, was founded in 1974. "We, like all of our other sister agencies, consider ourselves to be a community service organization," reports Jacobson. "Our agency is dedicated to helping people help themselves get out of debt, and stay out of debt."

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.