SAN DIEGO — Mitch Ronco, spokesman for consumer credit counselorInCharge Debt Solutions, said he's been turning more and morestruggling consumers away because they don't qualify for InCharge'sfull-repayment program.
“There is a huge need, far more than we can handle,” Ronco said.“We have more people coming to us that don't fit full-paymentplans-more each month. Our average consumer's debt used to be$17,000, and now its $23,000 or $24,000, and some are well beyondthat. We recently had someone with $195,000 worth of unsecureddebt, someone who will never qualify for full payment.”
While lenders are willing to negotiate to lower interest rates orpush past due amounts to the end of the loan, most still want fullpayment of all principle.
“Once you determine a consumer can't afford full payment, therereally aren't any
other solutions out there except debt settlement, and that's hadits problems,” he said. “You don't want to push someone intobankruptcy if they can make partial payment, and
the consumer sure doesn't want that. So we've been looking for agood partial-
payment provider.”
Then Ronco met Robert Manning, who had recently written a whitepaper for Filene Research Institute, outlining his responsible debtrelief algorithm, which includes plans for partial payment. Manningdemonstrated his algorithm, showing a tool that tests a household'sshock exposure to rising debt payments or lowered income, similarto the way financial managers shock test portfolios for interestrate risk.
Per the algorithm, debt-strapped consumers can be divided intothree program
categories: full payment, partial payment and bankruptcy. Manningcuts partial-payment qualification off at 20% of debt, saying it'snot worth the expense for creditors to collect
less than that.
InCharge's services are phone-based, so when consumers don't fitthe Orlando-based organization's full-payment plan, they are toldto call Salt Lake City-based Hope Financial USA, which offers apartial-payment program based on Manning's algorithm.
Ronco said InCharge doesn't offer partial payment because it wouldrequire an
intensive computer system upgrade and extensive staff training.And, he said, so many consumers need consumer counseling servicesthese days, there is plenty of business
to go around.
Creditors are beginning to warm up to the idea of partialsettlement, he said, although major credit card companies stillresist anything less than 70%. However, even major card providerssee the writing on the wall when it comes to consumer's abilitiesto pay back their debt, particularly when economists are predictingfurther job losses, he said.
“The bottom line is, partial payment is a better option thanbankruptcy for both the lender and the consumer,” he said.
Ronco added that Manning's algorithm makes the partial-payment selleasier for Hope Financial because the settlement amount is based ona consistent, mathematical model, rather than arbitrary offerslenders don't usually trust.
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