Academic journal article The Journal of Consumer Affairs

Credit Counseling to Help Debtors Regain Footing

Academic journal article The Journal of Consumer Affairs

Credit Counseling to Help Debtors Regain Footing

Article excerpt

In-depth interviews with 22 debt-ridden consumers who are enrolled in debt management plans reveal the vulnerability they experience in various life domains. Additional interviews with 19 credit counselors and agency executives illustrate how the practices of a credit counseling agency can help indebted consumers regain their footing. This research sheds light on how consumers can recover from their vulnerable situations and what aids this process.

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Consumer vulnerability is "a state of powerlessness" that "occurs when control is not in an individual's hands" (Baker, Gentry, and Rittenburg 2005, p. 134). Consumer vulnerability is affected by external factors such as mistreatment, segregation, and discrimination in the marketplace (Penaloza 1995). Certain demographic cohorts are more likely to be targeted and manipulated by dominant groups because they occupy a disadvantaged position in exchange relationships (Baker, Gentry, and Rittenburg 2005; Penaloza 1995). Previous research has found that individual characteristics such as socioeconomic status, age, race, gender, education, and physical condition can contribute to a vulnerable state (e.g., Baker, Stephens, and Hill 2001; Gentry et al. 1994; Hill and Kozup 2007). The present research illustrates an emergent state of vulnerability--credit card debt--that causes consumers to experience financial turmoil, social isolation, and psychological stress. It shows how consumers with unmanageable credit card balances appear vulnerable in their life domains, and more important, how they can cope with their difficulties and recoup their stable status. Indebted consumers are able to repay their debts, rebuild their credit ratings, and regain their financial and personal well-being when they have appropriate support and adequate tools. This research assesses how one important source of support--the credit counseling agency (CCA)--can help debtors escape their vulnerable states and get back to normalcy.

Troubled credit card debtors are vulnerable to lenders and merchants. Their deteriorated financial circumstances make them less valuable as clients and more risky as customers. As their debt situations worsen, they are given less negotiating power by creditors and less opportunity to recover. Many debtors struggle with multiple payments and simply become overwhelmed. As a result, more than one million people filed for bankruptcy each year in the past decade (American Bankruptcy Institute 2006). Although bankruptcy eliminates most unsecured debt, it causes long-term damage to an individual's financial status. In addition to their financial difficulties, bankrupt people struggle with moral convictions and are burdened by social pressure (Sullivan, Warren, and Westbrook 2000). In sum, heavy credit card debt makes people vulnerable in several life domains.

Credit Card Debt

Consumer debt is a rampant phenomenon in America. Stimulated by easy credit and surrounded by temptations to consume, American household borrowing rose to $6.5 trillion (Zuckerman 2000) and credit market debt equaled 295% of the gross domestic product (Laing 2003). Consumer debt is a two-edged sword: Although it facilitates access to goods and services, excessive debt can lead to financial disaster and tragedy. Each year in the past decade, more than one million individuals filed for personal bankruptcy, and a record two million people filed in 2005 (American Bankruptcy Institute 2006). Credit card debt, the main contributor to many consumers' woes, has become a widespread economic and social phenomenon in America. The extent of personal indebtedness raises concerns about the effects of debt burdens on individuals, families, and the social fabric (Manning 2000). Among various consumer debt vehicles, credit cards are notorious. Their exorbitant interest rates, high fees, and penalties, as well as the temptation to engage in reckless spending, contribute to their ill repute. …

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