The downgrading of the U.S. credit rating by Standard & Poor’s this week from AAA to AA+ might feel like an event that only has an impact on those that watch the economy. But it’s impact on the debt relief industry can’t be overlooked either.
In order to have a successful debt relief industry you need two components, consumers with debt and consumers with the capacity to repay.
The last consumer confidence numbers in July were disappointing with only 33 percent saying conditions are better compared to six months ago. But following a deadline biting government battle over debt ceilings and a reduction in the U.S. credit rating for the first time in history, I predict the consumer confidence rating will drop further in the months to come.
Continued downward pressure by a struggling economy damages a recovery in debt relief demand by reducing consumer confidence and significantly impacting the old hyperbolic discounting that allowed consumers to be more optimistic about the future before and thus be more willing to enter long-term repayment programs.
If a double dip recession hits or not, consumers have just seen the economic fallout from a recession and it is so fresh on their minds that in my opinion they will be less likely to want to enter five year repayment programs through a DMP. In recessionary years, five years is a career and a half.
This less optimistic view of the future will limit growth in the debt relief fields for the foreseeable future.
This may seem a bit reversed since consumers will become saddled with more debt as jobs, income, or hours are cut but the underlying problem is that there will be less and less money available, or perceived to be available, for repayment.
Solutions that do not stop collection calls and take less than a few years will fall out of favor as the surrounding pressures of just keeping a roof over their head and food on the table becomes more important.
I expect to see bankruptcy numbers remain strong in light of residual demand. We can’t forget that while bankruptcy numbers may fall, they will remain high based on the shrinking pool of consumers that have not addressed their debt situation yet over the past four years.
Lately I’ve been geeing more reader questions that spell dire trouble. With unemployment running out, no jobs on the horizon, mortgage payments behind and uncertaintity about how the family will be feed; debt repayment is not a concern. Survival is.
My last article showing search trends for debt relief services, is here.
It’s time to take another look.
The charts below are based on search trends for the various topics. The top chart shows search demand over the entire period of recorded data and the bottom one, over the past twelve months.
If anything, the trend for consumer demand for credit counseling information has declined further so far in 2011.
Searches and consumer awareness of debt settlement continues to slip.
Consumer bankruptcy demand for Chapter 7 bankruptcy information is off but I expect it to rebound more as consumer confidence and the economy slip. But if you look at the big surge in interest in bankruptcy in 2009 and 2010 it leaves me wondering how many consumers have already addressed their problem situations and how many are left needing to address the debt problem. Essentially, has the bad debt pipeline been significantly cleaned out?
With less lending by creditors and more consumers dealing with their debt over the past two years, the pool of consumers with capacity to repay, confidence in the future, and problem debt to address becomes smaller and smaller.
What is interesting to note now is that bankruptcy interest experienced a big post holiday bump entering into 2011 while credit counseling did not and debt settlement did to a much lesser degree. The credit counseling post-holiday bump had always been a dependable phenomena.
I stand by my previous advice I offered in January of this year (“Dear Credit Counseling, Times Only to Get Tougher“) as still true today in light of the continued search trends and feedback I am getting from the debt relief front lines.
Demand for debt relief services will continue to decline.
Without consumers that are loading up on new debt and more optimistic about the future, debt repayment solutions will continue to be less important than addressing their debt in other ways that provide a much more immediate benefit to alter their monthly cash-flow situation to better meet basic demands.