Questions 23-33 refer to the following information.
Good Counsel for Now and Later
23 Specialists who combine counseling training with financial planning acumen, a credit counselor can advise about issues such as student loans, mortgage payments, small business operations, and bankruptcy. Struggles with debt are common in American 24 society—the 2018 Consumer Financial Literacy Survey, revealed that one in four Americans admits to not paying all of his or her bills on time, while eight percent of respondents now have debts in collection. While a credit counselor's primary task may be to advise a client about resources that 25 mite help eliminate personal debt, this feedback can still involve many aspects of the client's life.
26 Academic research provides insights into how people develop difficulties with debt. For example, some individuals struggle to make regular house or car payments while also trying to repay longstanding credit card or student loan debts. Credit counselors work with these individuals to assess their current situations, create budgets, and strategize about paying off existing debts. When individuals with more than one source of financial concern "come to credit counseling early in that process, there are more options at their disposal," explains Peter Klipa, vice president of creditor relations at the National Foundation for Credit Counseling. A counselor may propose 27 explanations that include a debt management plan, which involves paying a certain monthly amount toward the total sum owed.
Evidence suggests that when individuals go through financial counseling, the experience can affect both 28 resolutions of current debt crises and the habit's shaping future spending and credit use. For example, a 2016 study that analyzed the financial health outcomes associated with financial counseling indicates that those who don't receive credit counseling end up making their bad financial habits worse over time. The participants who
didn't receive counseling had, on average, not just failed to decrease their debt but had instead increased their overall debt levels 29 by $2,808 during the same period. 30 Despite the possible stigma of seeking counseling, clients who received counseling had, on average, decreased their total debt by almost $9,000 in the eighteen months after receiving that counseling. While both counseled and non-counseled individuals experienced an increase in their so-called open credit ratio, which measures how easily a person can pay off current debt obligations using currently available assets, the study found that people who received counseling experienced a greater bump: 31 on average, their final open credit ratio was 0.48.
Financial Outcomes for Clients Who Did and Did Not Receive "Sharpen Your Financial Focus" Counseling
Study Group + Financial Situation | Pre-Counseling (at the beginning of the study) | 18 Months Later (at the end of the study) | Change |
Counseled Individuals' Open Credit Ratio | 0.31 | 0.57 | +0.26 |
Non-Counseled Individuals' Open Credit Ratio | 0.30 | 0.48 | +0.18 |
Counseled Individuals' Total Debt | $81,059 | $72,526 | -$8,533 |
Non-Counseled Individuals' Total Debt | $84,130 | $86,938 | +$2,808 |
*Adapted from "Evaluation of Outcomes: The NFCC's Sharpen Your Financial Focus Program," National Foundation for Credit Counseling, 2018.
While a credit counselor may not be able to resolve an individual's financial difficulties 32 overnight; nevertheless, financial counseling provides valuable insights for people struggling with monetary commitments. Beyond helping individuals get out of 33 close-up financial distress, counselors also advise people on more sustainable budgeting and spending strategies for the future. That combination results in higher financial literacy and greater confidence moving forward.
