Debt Settlement in 2012: Why the Do-It-Yourself Approach Is Safer and More Effective for Consumers

If you are researching debt settlement services, a quick Google search will yield thousands of companies offering to “negotiate” on your behalf. For most consumers, it’s very tempting to just hand off the problem. But that would be a major mistake! Buyer beware!

Why? Because many existing debt relief firms will not be in business a year from now! After many years of such greedy fee structures and outrageously deceptive advertising claims, the industry recently had its collective head handed to it by the Federal Trade Commission Debt Settlement.

How Will Debt Settlement Affect My Credit Score

As of October 27, 2010, third-party debt settlement services can no longer charge fees in advance of performing the service. However, debt settlement companies are permitted under the new FTC rule to charge a success fee based on PERCENTAGE OF SAVINGS. So the standard industry fee structure will default back to 25-30% of the savings achieved in the negotiation, full circle to where the legitimate settlement industry started back in the 1990s.

In the wake of the FTC ruling, the debt settlement industry is in total chaos. Many firms have closed entirely, or folded their sales operations to run “back-end processing” operations on behalf of other marketers. A few brave companies are attempting to implement the no-advance-fee rule and make the percentage of savings model work.

However, after many years of addiction to charging stiff upfront fees, it remains to be seen whether any of these “good” firms will withstand the tremendous financial upheaval that comes with such a radical change in revenue timing.

Consumers hiring any third-party debt settlement services subsequent to the October 2010 FTC ruling are participating in a risky EXPERIMENT under an untested business model – an experiment born of desperation.

For the owners of these firms, the question is whether or not they can survive long enough for their clients to settle some debts, start paying them fees, and generating (hopefully) a profit. Any consumer in their right mind would run in the other direction from such programs.

In a financial crisis where you have been forced to default on a large block of debt, what are you the most fearful of? You’re afraid of GETTING SUED, right? Hire a debt settlement service firm, and you have just greatly increased your risk of getting sued. The increased risk is coming from two HUGE factors that work against such companies, and therefore against the unfortunate clients enrolled in their programs.

Briefly, these two factors are the FOOTPRINT caused by a debt settlement company’s involvement, and the DURATION of their process, where settlement companies are forced to wait beyond charge-off to even begin negotiating settlements. Let’s take these factors one at a time.

When I talk about a FOOTPRINT left by debt settlement companies, I’m referring to the fact that the firm cannot negotiate on your behalf unless they obtain your written Power-of-Attorney (POA) and send it to your creditor. During the past ten years, all the major credit card banks have received POAs by the truckload as hundreds of debt settlement companies signed up anybody with a credit card bill.

If you’re just falling behind when you enroll with a debt settlement company, and the company sends your POA directly to your creditors, that causes a recognizable FOOTPRINT that CHANGES the game completely. A creditor who settles for 30-35% directly with consumers might pull such a “third-party account” from the main collection stream and assign it for quick strike legal action. Once a creditor recognizes that you have hired a debt settlement company, your risk of litigation greatly increases.

Why does this state of affairs exist? Because the industry has NO WORKING RELATIONSHIP with the credit card banks. In fact, the banks have tried to have the industry shut down completely. The banks LOATHE debt settlement firms.

Due to the absurd marketing practices of the debt settlement industry at-large, the top ten major credit card banks have practiced a “scorched earth” policy against third-party settlement companies. The atmosphere between debt settlement services and the banks is that of a “poisoned well,” and not the cozy relationship the sales pitch would have you believe.

If NO major credit card bank will even TALK to third-party debt settlement companies, this means that DEBT SETTLEMENT FIRMS DO NOT SETTLE DEBTS UNTIL AFTER CHARGE-OFF! Well, guess where about 95% of the risk of litigation happens to be?

Look folks, it’s been a while since I graduated from business college, but I am quite certain that it makes zero sense to pay someone to increase your risk of getting sued. This is especially true when the job in question is something that you can do yourself!

Please take it from an industry insider with 14 years’ experience – for the average consumer hiring a third-party debt settlement company would be a MAJOR FINANCIAL MISTAKE.

It’s ironic when you think about it. Due to many years of bad behavior, the third-party debt settlement industry has effectively been BANNED by the banks. So you can do something they can’t do anymore – settle your own account directly, before charge-off (in most cases), and get a BETTER RESULT in the bargain.

There are three HUGE advantages to handling your own settlement program:

1. You’ll SAVE THOUSANDS off the sky-high fees settlement companies are still charging. Even the “good” firms attempting to comply with the FTC ruling will charge 25% of the savings negotiated. (Some are charging as much as 30-40%!) With a debt load of $40,000, settled for 40 cents on the dollar, the negotiation fee works out to $6,000!

2. You’ll GET OUT OF DEBT FASTER. This is true for two important reasons. First, without having to cover the large fees, your resources will go entirely toward eliminating your debt. Second, you can start haggling well inside the 6-month charge-off deadline instead of waiting beyond (as you’d have to with a third-party settlement program).

3. You’ll GREATLY DECREASE YOUR RISK OF LAWSUITS by avoiding dangerous and obsolete tactics (such as cease communication notices), and also by getting your debts settled on a Fast-Track™ basis.

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