Credit counseling is typically a two part process designed to help consumers who have incurred more debt than they can handle, usually credit card debt.  The first part involves education concerning issues of money management, budgeting, etc.   The second part is the creation, with the creditors, of a debt management program (DMP). A DMP typically helps the debtor repay his or her debt by working out a repayment plan with the creditors. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client.

Common features of Debt Management Programs

After joining a DMP, the creditors will close the customer's accounts and restrict the accounts from future charges. The credit counselor will then combine multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer. Credit card banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own. Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is more common.

The second feature of a DMP is a reduction in interest rates charged by creditors. A customer with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charged to 5-10%, and a few eliminate interest altogether.

A third benefit offered by credit counseling agencies is the process of bringing delinquent accounts current. This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program. 

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made credit counseling a requirement for consumer debtors filing for Bankruptcy in the United States. In order to meet this requirement, during the 180-day period preceding the filing of bankruptcy, the debtor must complete a program with an approved nonprofit budget and credit counseling agency.

Credit counselors are paid a percentage of the money they collect, typically 4-10%, by the creditors.

Greenpath Debt Solutions is a large non-profit credit counseling agency.  They offer a variety of services to people in debt including education, legal counseling, and debt management plans.

Business model: Credit counseling agencies are currently paid by the creditors a percentage of the money they collect.  Similarly, credit counselors could be paid by providers in a healthcare setting.

Assumptions: Like traditional credit card creditors healthcare providers would want a similar intermediary.

Speaks to multiple leverage points.

• Smoothing the vicissitudes of  individual financial context in the face of the cost of healthcare events
• Credit counselors help consumers when they’ve gotten in over their heads.  Their debt management programs can keep consumers out of bankruptcy and help repair their credit rating.
• Rebalancing of Intermediation and Disintermediation
• Credit counselors can be effective intermediaries between patients and their creditors.