Authored by:
Richard A. Briesch, PhD
Associate Professor
Cox School of Business
Southern Methodist University
August 6, 2009

The current economic climate makes the need for debt management programs even more acute. More consumers are finding themselves in financial hardship due to high unemployment, low home equity rates, lack of access to bankruptcy protection, and the “credit crunch” so well documented in the press and by legislators. This economic climate implies that many consumers are one emergency away from financial hardship. There is no question that the multitude of people currently in financial distress need programs that reduce the principal of their debt to stave off bankruptcy (Manning 2009, Plunkett 2009).

Debt management programs (DMPs) come in several forms, but their basic structure is similar: they require some sort of consumer education if they are accredited by national trade associations (Keating 2008, USOBA 2008), consumer participation is voluntary (Hunt 2005, Plunkett 2009) and a plan is set up to make the consumer debt-free in two to five years. The key differences in the organizations are the mechanisms they use to finance the organization and to help consumers pay off their debt (Hunt 2005, Plunkett 2009).

In this paper, I refer to organizations that help consumers pay off their debt by reducing interest rates as consumer credit counseling services (CCCSs) and organizations that help consumers pay off their debt by reducing principal as Debt Settlement Programs (DSPs). The efficacy of these different approaches has been discussed by a variety of authors, but these discussions have lacked a clear and detailed consumer welfare analysis, which is provided in this research.