Credit Counseling and Long-Term Credit Outcomes: Evidence from the National Foundation for Credit Counseling’s Sharpen Your Financial Focus Program

The purpose of this study is to identify the characteristics and long-term outcomes of consumers participating in nonprofit credit counseling, including those who do and do not enroll in debt management plans. We construct a panel dataset of consumers participating in the National Foundation for Credit Counseling’s “Sharpen Your Financial Focus” demonstration program from September 2013 through December 2016, linking administrative data at the time of counseling to quarterly credit data beginning one year prior to counseling through five years post counseling. We construct matched comparison samples of non-counseled consumers in Experian’s credit data and estimate a series of difference-in-differences models. Relative to the comparison groups, we find a significant additional reduction in credit card debt following counseling for all counseled consumers, and increases in credit scores for consumers who enroll in a debt management plan (DMP) relative to otherwise similar non-counseled consumers. We use trade level credit card data to decompose the mechanisms underlying the decline in credit card debt. While a large share of the decline in debt for consumers who enroll in a DMP can be attributed to debt repayment, the majority of the decline in debt for consumers who do not enroll in a DMP can be attributed to creditor charge-offs, bankruptcy, and debt settlement. These findings highlight the need for innovations to meet the needs of counseled consumers who do not currently enroll in DMPs.