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Charles Phelan

DIY Debt Settlement Myth #1: A Settlement Company Will Get Better Deals Than I Can Myself

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This is the first in a series of posts discussing the most common myths about do-it-yourself debt settlement. As you do your research online, you’ll read a lot of pages and articles that are slanted against the do-it-yourself approach and biased in favor of using third-party debt companies. Many articles that have titles pertaining to DIY settlement are really just bait-and-switch marketing for a company program. The article may start out with the question, “Is it possible to settle debts on your own?” Then it provides a “yes-but” answer, as in, “Yes, but you’ll get better results if you use a professional.” From there we are usually treated to a repetition of one or more tired old myths about DIY vs. traditional debt settlement I will cover in this series.

I can understand why people might think this claim to be true. After all, there are many situations where it makes good sense to hire a professional instead of doing the job yourself. Rewiring your house if you’re not a qualified electrician would be one example! However, when we’re talking about negotiating down your credit card debt, the only thing you really should care about is how much money you have to pay out in the end. Success is measured by how much money you SAVE, period. So by definition we have to take into account the sky-high fees charged by these debt companies, with 25% of savings considered a current industry benchmark.

With do-it-yourself debt settlement, you have an opportunity to save more because you’re excluding fees that amount to a significant chunk of your debt. Please note that when I refer to DIY debt settlement, I’m not just talking about buying a book from amazon.com, but rather hiring a DEBT COACH to guide you through the process. I’ve been doing this for consumers since I set up ZipDebt in 2004, and the results have been nothing short of amazing. In 2011 alone, ZipDebt clients settled $8.5 million for an average of 32.2% (balances at time of settlement). The prior year we had more than $16 million in reported settlements at 33.1%. Bear in mind that 100% of these settlements were SELF-NEGOTIATED by the consumer using ZipDebt’s training materials, supplemented by live coaching. Now, good luck finding a published track record by a third-party debt settlement firm that comes anywhere close to our results. Settlement averages for most of the larger firms, when you can find any data at all, come in around 47-50% before fees.

Let’s say you start with $50,000 of debt, which can be expected to inflate during your program to around $55,000 due to interest and fees. Your debt company accepts settlements for an average of 47% of your $55,000 balance, so in this example you pay $25,850 to your creditors. However, the settlement company’s fee is 25% of what they have saved you (measured against the starting balances). So $50,000 minus $25,850 means they saved you $24,150, and 25% of that figure is your fee, or $6,038. Therefore the total amount you will have to pay is $31,888! Your overall savings is only $18,112. While this is a significant amount of money, this is a poor result compared to what you can save by doing it yourself with the aid of ZipDebt.

Let’s compare the above outcome to the results that many clients have achieved using ZipDebt’s approach. Taking that same starting figure of $50,000 and inflating to $55,000 (so we have apples to apples), and using OUR program’s historic settlement average of 33%, you would wind up paying only $18,150 to your creditors, a big improvement over $25,850. Assuming you ordered my Premium Program at $792 (including shipping), your total payout INCLUDING FEES is only $18,942 on a $55,000 debt! That is an amazing total savings of $31,058 compared to a savings of only $18,112 for a professional service. That’s almost $13,000 back in your pocket you would otherwise have paid to creditors and the settlement company. Even more important, when you have less to pay back to the creditor and lower fees you can build money up faster to make settlements. Fast settlements are to your advantage, as I will explain later in this series. This is a huge advantage and translates to LESS RISK of legal action.

Once you understand the power of the DIY-with-Coach method of debt settlement pioneered by ZipDebt, the decision is a no-brainer!

Myth busted. Consumers who are properly coached get better results negotiating on their own vs. hiring a professional negotiator. ZipDebt’s published data proves this beyond any doubt.

How to Settle Your American Express Credit Card Account

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[vc_row][vc_column][vc_column_text][Note: This article originally appeared as a guest post on Steve Rhode’s blog at GetOutofDebt.org. Thanks to Steve for permission to repost here on The ZipDebt Blog.]

If you’re facing a legitimate financial hardship and can’t make the minimum payments on your American Express credit card one potential solution is to negotiate a lump-sum settlement for less the balance owed. If you’re unfamiliar with debt settlement, you’re probably wondering how someone who can’t make their monthly payments would have the funds needed for a settlement at, say, 50% of the total balance. But there is a huge difference between income and assets, and many consumers who can’t sustain regular monthly payments due to lack of income or other financial hardship are able to use some of their dwindling savings for the purpose of settlements. Other sources for funding settlements might include the sale of household items, collections, cash value life insurance policies, borrowing from family, or sale of property. These are one-time funding sources, in other words. Once the money received from a one-time source has been expended, there is no more to replace it. But such funds can be put to excellent use in retiring a major credit card debt, when otherwise the customer would just be facing an unsustainable situation (which in turn often leads to bankruptcy).

When it comes to settlement with American Express, there are some specific facts about this creditor that you should be aware of. Prior to the financial crisis of 2008, American Express was not a bank like most other major credit card issuers (such as Bank of America, JP Morgan Chase, Citibank, etc.). The company converted to a bank holding company structure in November 2008 in order to become eligible for Treasury Department assistance under the infamous “TARP” program. The reason this matters is because there are some important differences that need to be taken into account in terms of the “collection culture” at different types of creditors. For example, most of the major credit card banks eventually SELL their delinquent accounts to various debt purchasing companies, so when you are trying to settle an old charge-off account it’s very possible that you’ll be dealing with a debt purchaser or their collection agency. Yet it’s highly unlikely you will encounter this situation with respect to any type of American Express account. This creditor rarely sells its accounts, no matter how old. It’s simply a part of the collection culture that developed at American Express, which positioned itself over the years as being “different” than Visa or MasterCard.

Why is this relevant if you’re trying to reach a settlement with Amex? Many websites offering advice on settlement of credit card accounts recommend sending “debt validation” notices to collection agencies or creditors, in theory “putting them on notice” that you are aware of your consumer rights and demanding copies of their backup documentation. There are definitely situations where a debt validation letter is appropriate and effective. However, when you are trying to settle an American Express account, it would be a major tactical mistake. The reason is because they have the documentation. It’s trivially easy for an original creditor to produce a stack of monthly statements two inches thick and mail it to you. Voila. Debt validated, and account moved to an in-state legal firm for your troubles!

The first rule in settlement with American Express is therefore to avoid any sort of tactical “games” like debt validation, which are generally unnecessary anyway. I always recommend proactive telephone contact with creditors, and American Express is certainly no exception. Get on the phone a couple of times a month and let them know about your situation. Be aware that you’ll hear various kinds of options presented to you depending on how far behind you are on payments. For example, if you are two payments behind, the representative will generally not discuss settlement yet and will only speak in terms of different payment options. Listen carefully to these proposals and note them down. Sometimes these alternate programs can include low interest rates and lower monthly payments, and for some consumers this level of relief alone may provide sufficient breathing room to get a handle on their financial situation.

If you’re more than three payments late, the odds are good that you’ll be hearing from an outside collection agency. It’s quite common for American Express to assign their accounts to third-party collection agencies well before the point of charge-off at 180 days late, often as early as 90 days late. Don’t panic if this happens! Understand that the majority of settlements with American Express are negotiated through these third-party collection agencies.

Achieving a settlement with any creditor is a matter of balancing RISK versus SAVINGS. You’re in a financial crisis and want to obtain as deep a discount off your balance as possible, but you also have to be mindful of the legal risk that mounts whenever you are behind on payments with a creditor. One important tip for determining the risk factor is to assess WHERE the assigned collection agency is located. If they are not a law firm and they are in some other state than yours, then the situation is low risk compared to assignment to a law firm in your state. American Express is not a “bluff” creditor, so we do take any legal threats from them seriously once a file has escalated to placement with a collection attorney firm (licensed to operate in the client’s home state). In such situations, the risk is greater, so we accept a higher figure than we might otherwise. Where the risk is lower, we can hold out and try to do better on the settlement percentage.

Let’s say you are talking with a third-party agency in a different state and they have agreed to a 40% settlement. You are happy with the result and you can fund the settlement ok. The one unbreakable rule in debt settlement is to GET IT IN WRITING FIRST, before you pay! You must have a letter in-hand before you make payment on your settlement. There are NO exceptions to this rule. A faxed copy is fine, and in fact most settlement letters are just fax copies of the agreement. This isn’t a matter of “trust,” or “distrust.” It’s just simple common sense that any agreement modifying your contract with American Express (or any other creditor) must be in writing. If you have a debt collector balking at putting the settlement in writing, then just put your foot down and insist that you will only proceed on the basis of a written agreement letter. It doesn’t have to be long! It just has to cover the essentials – the account number, amount of settlement to be paid, any payment installments listed clearly with due-dates, and the transaction has to be defined or referred to as a “settlement,” or “settlement-in-full.” Simple enough!

With your letter in hand, then you can make your payment. Cashier’s check by Federal Express is one method, but you want to be sure that you’ve coordinated payment method with the agency. Most of them prefer check-by-phone or electronic check (same thing). This is also called an ACH transaction, and it means you provide them the bank routing number and account number off your checking account. If you have it in writing first, it’s ok to do this. If you are negotiating settlements with multiple creditors, it’s better to set up a special checking account for this purpose. That way you can react quickly in case anything goes amiss.

One more important point about settlements with American Express. Many consumers have both personal and corporate cards issued by this creditor. It’s common to carry a personal account and then receive one issued by your employer, to cover work-related travel expenses, per diem costs, and so on. The corporate cards are generally issued to the corporation itself, even though your name appears on the card, so generally it is not advisable to attempt settlement on this type of account, as it could have a direct effect on your employment status.

Take the high road and negotiate in good faith with your creditors. Don’t play games or make up stories about your situation. If you are in a financial crisis, that is enough, and you just need to be patient and persistent. Start out with an offer around 20-25% of what you owe, but state this in terms of a dollar amount. You are aiming for a financial outcome that you can live with, not a world-record low percentage. As the negotiation proceeds, resist your initial urge to jump your offer right away, and give it some time to see how things go first. You can always increase later. The first offer you receive from an agency will rarely be the best offer available, no matter how convincing the explanation that this is “the best we can do.”

Over time, and with a series of negotiation calls, it’s possible to reach a settlement agreement on your American Express card that you can handle. Don’t be greedy. Once you reach your goal, accept the settlement and take the deal off the table. If you’re like most clients, you’ll feel a tremendous sense of empowerment at achieving a successful settlement. It can be a huge game changer financially, as well emotionally.[/vc_column_text][space height=”4″][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]UPDATE: August 8, 2016

In the five years since I originally published this article, I’ve received numerous questions and inquiries about negotiating settlements with American Express, and talked to hundreds of consumers who were finding it difficult to reach an agreement even with all the advice I had presented in the article.

A big part of the problem in dealing with American Express is due to two key factors.

(1) They move the file quickly to outside collection agencies compared to other major credit card issuers, and many of those assignments are to in-state law firms.

(2) Their collection law firms often file lawsuits as quickly as 4 months late, so many (if not most) American Express settlement negotiations are taking place with active litigation in play.

While I’ve successfully coached many people to reach settlements with American Express, I am no longer actively recommending the Do-It-Yourself method for dealing with this very difficult creditor. Settlement with Amex requires steel nerves and precision timing, and is best handled via a customized full service approach.

If you are facing a default situation with American Express and would like to have some professional assistance in resolving the matter, please read my 5-part series on Tailored Debt Settlement.[/vc_column_text][space height=”4″][/vc_column][/vc_row]

8 Things Debt Collectors Won’t Tell You

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by Gerri Detweiler of Credit.com

It should come as no surprise that if you’ve fallen behind on your bills, you may be hearing from debt collectors. If they do call, you will almost certainly hear that you need to pay them and that you need to do so immediately. But there are a number of things that they aren’t likely to tell you, and knowing these things can make all the difference in resolving your debts.

1. Some of Their Threats Have No Teeth

If you can’t pay the collector the amount he is demanding, or refuse to give your bank account or debit card number to make the payment, the debt collector may threaten to “put you down for ‘refusal to pay.'” But that’s “a meaningless phrase in the debt collection world,” says zipdebt.com founder Charles Phelan, who coaches consumers trying to settle debts. He elaborates:

When a collector says, “We are going to inform your creditor that you are refusing to pay this bill!” they are just using reverse psychology. Your creditor has already figured out that you aren’t paying the bill, or they would not have sent your account to a collection agency in the first place!

Another example? Bogus deadlines. Says Phelan, “Collectors will always try to create a false sense of urgency by imposing a series of deadlines, after which ‘this deal will no longer be available.’ The reality is that settlement or workout offers tend to improve over the course of a typical 3-month collection assignment (i.e., in a non-legal collection scenario).”

2. They Have to Stop Bugging You at Work if You Tell Them To

The Fair Debt Collection Practices Act is very clear on this point. Once you tell a debt collector your employer doesn’t allow you to talk with her while you are at work, she must stop calling you there. Yet in its 2011 Annual Report to Congress about Fair Debt Collection Practices Act complaints, the Federal Trade Commission noted that in 2010 it received 17,008 complaints related to debt collection calls to consumers at work, up from 11,991 complaints the year before. “By continuing to contact consumers at work under these circumstances, debt collectors may put them in jeopardy of losing their jobs,” notes the FTC.

3. They Can’t Blab About Your Debts to Others

Debt collectors are generally only allowed to discuss your debt with you, a cosigner, your spouse, or your attorney. They cannot discuss your debt with neighbors, relatives who aren’t obligated to pay the debt, or coworkers. In fact, under the FDCPA, they are generally only allowed to contact third parties to locate you, and once they have found you, contact with third parties must stop. Sukhman Dhami of the consumer law firm Dhami Law Firm, P.C., explains:

We call these ‘third party disclosures’, a violation of Section 1692c(b) of the Fair Debt Collection Practices Act, and they are exceptionally common, particularly when the debt collector leaves a message on a public answering machine. These public answering machine violations are called “Foti” violations after the landmark case Foti v. NCO Financial Systems, 2005.

If a debt collector leaves a message for you on any conventional answering machine or any shared/open access voicemail system, they are likely to violate the third party disclosure restrictions per Foti, so save any machine message and/or voicemail which a debt collector leaves for you!

He goes on to warn, “If a debt collector contacts third parties, we want to know about it, because chances are that the collector violated one or more provisions of the FDCPA.”

4. Your Debt May be too Old for Me to do Anything About It

“Stale debt is not collectible,” advises Atlanta bankruptcy attorney Jonathan Ginsburg. “Every State has a statute of limitations that make debt of a certain age not collectible. Debt collectors are not currently obligated to advise you that they cannot sue you or legally ding your credit report if you refuse to pay stale debt.”

In most states, the statute of limitations runs four to six years from the date you last made a payment. And that’s the catch. “In some states, a voluntary payment on a stale debt can revive the debt and make it legally collectible,” Ginsberg warns. But don’t be surprised if you hear about a very old debt. “Stale (or zombie) debt is big business,” he adds.

“Seniors are constantly targeted for old debts,” believes Alex Viecco of the debt negotiation firm New Era Debt Solutions. Viecco says they’re seeing a trend where debts that were the result of identity theft are, “coming back around for consumers. They certainly do not remember it and suddenly (collectors) act as if it was theirs.” He says his firm also hears from clients who complain about old medical debts that should have been paid by the insurance company but weren’t and resurface years later.

“Never admit to any debt without first getting more details,” recommends Viecco. At a minimum, you want to establish that the debt is legitimate, you owe it, the collector on the other end of the phone isn’t a scammer, and whether the statute of limitations has expired.

At the same time, don’t assume that just because a debt is older it can’t be collected, or that it can’t affect your credit reports. “There are a handful of states that do require the collector to tell the consumer that they cannot be sued,” says Mark Schiffman, director public affairs for ACA International. “While it is true that every state has a statute of limitations, which varies by state and by debt type, and that a collector may not sue or threaten to sue a consumer, the collector may still seek to collect the debt from the consumer so long as it is within the guidelines of the Fair Debt Collection Practices Act.” He also notes that under the Fair Credit Reporting Act, collection accounts may be reported for seven years.

5. Debt Collectors are Under Pressure to Collect, Just Like You are to Pay

Collectors “work on sliding scale commissions and the quicker they get someone’s money, the higher the commission,” says Philadelphia debt collector abuse lawyer Michael Forbes. “If they don’t get your money within a fixed period of time, your account will be sent back to the creditor.”

So while collectors may pressure you to pay right away, staving them off a bit might work in your favor if you can’t afford to pay the full amount you owe. “Collectors will generally not share that they may take a lower settlement offer at the end of the month in order to meet a quota, or nearer the end of the assignment contract when the creditor is going to pull the account back,” says Michael Bovee, founder of the Consumer Recovery Network. He explains that most assignment collection accounts (where creditors assign debts to collection agencies rather than selling them) stay with collectors for 90 days. Any accounts that are not collected at that point may go back to creditors, usually to be placed with another collection firm.

And while collectors may insist that you pay the full balance you owe over time, they may actually prefer to get a smaller, lump-sum payment, says Phelan. Why? “They get paid commissions much faster that way!”

And just because you have accounts in collections that doesn’t mean you are doomed to bad credit for seven years or longer. In fact, there are probably steps you can take now to start improving your credit. Get your free credit reports and credit scores (you can get two free credit scores updated monthly, along with an action plan for your credit at Credit.com). No doubt there are steps you can take that can make a difference; by paying down credit card balances, for example, or getting a secured credit card.

6. If They Really Want to Play Hardball, They Will Have to Sue You

If you owe unsecured debt such as credit card debt, collectors must typically sue you before they can go after your property, including money in your bank accounts, or try to garnish your wages. But threatening to take such actions before they have sued you and won a judgment may be illegal. Even threatening to sue you to collect a debt may be illegal if the collector has no intention of doing so.

The FTC reports that in 2010, just over a quarter of all FDCPA complaints reported that third-party collectors falsely threatened a lawsuit or some other action that they could not or did not intend to take. In addition, 18.6% of FDCPA complaints alleged that such collectors falsely threatened arrest or seizure of property. No doubt some of these complaints involved overseas payday loan collection scammers. Still, some involved calls from collectors in the U.S. trying to collect legitimate debts.

“Debt collectors use applied psychology to persuade and threaten consumers to pay debt,” Ginsberg explains. “Often this psychology involves veiled threats of criminal action or litigation when these options are not available.”

7. Paying Off This Debt Won’t Help Your Credit Ratings

Under the Fair Credit Reporting Act, a collection account will remain on your credit reports for seven years and six months from the date you fell behind with the original creditor. Collectors may make it sound like paying off collections account will improve your credit, by telling you that they will update your credit report to “paid in full” status. But this probably won’t help your credit scores. Collection accounts are negative, regardless of whether they are paid or not.

In an an article titled “Will Paying a Collection Improve My Credit Score,” Credit.com’s credit scoring expert Tom Quinn wrote:

The fact that a collection account is on your credit report (regardless of balance) is, in and of itself, predictive of future risk, as research shows that consumers with collection accounts on their credit report are less likely to pay as agreed in the future than consumers with no credit report blemishes.

On the other hand, paying the collection account may stop the creditor or collector from suing you, and a judgment on your credit report could hurt your credit report even more. Additionally, some mortgage lenders may require you to pay or settle collection accounts before giving you a loan.

8. You Probably Don’t Have to Pay Your Deceased Relative’s Debt

“Collecting debts of the deceased is a growing and lucrative business. Creepy, huh?” says Mary Reed, the co-author of more than twenty legal and financial books (including the book she coauthored with the author of this article, Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights.) But generally, she points out, you aren’t responsible for the debts of relatives who died unless you were a cosigner, or the debt belonged to your spouse who died and you live in a community property state. Creditors or collectors may try to collect from the estate, if there is one. If the person left nothing, however, then they may simply be out of luck. Though they are supposed to tell you that you don’t have to pay the debt, they may conveniently leave that out or gloss over it.

UPDATE June 12, 2019: For further information on protecting your family’s assets, here is an excellent resource at Bankrate: “Why Everyone Needs An Estate Plan.”

If you’re concerned about how your debt could be impacting your credit, you can check your three credit reports for free once a year. If you’d like to monitor your credit more regularly, Credit.com’s free Credit Report Card provides you with an easy to understand breakdown of the information in your credit report using letter grades, along with two free credit scores that are updated monthly.

$8.5 Million in Credit Card Debt Settlements by ZipDebt Clients in 2011!

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In 2011, clients of my ZipDebt program reported settlements totaling more than $8.5 million of debt, primarily credit card debt balances. Here are the actual statistics:

ZipDebt Settlement Results for 2011

Number of settlements reported __568
Debt balances settled __$8,557,873
Amount paid for settlements __$2,752,917
Client savings __$5,804,956
Average account balance __$15,067
Average settlement result __32.2% (balance at time of settlement)

To put these figures in perspective, first you have to remember that ZipDebt is a “boutique” rather than a large firm. During 2011, with just one other person helping me with coaching, our clients saved nearly $6 million off their balances. Every single one of these settlements was SELF-NEGOTIATED. So much for the oft-repeated claim (by debt settlement sales reps) that consumers can’t negotiate their own settlements!

Here are some important additional data points:

  • Out of the 568 reported settlements for 2011, 445 of them were negotiated BEFORE CHARGE-OFF.
  • Two out of three settlements were negotiated directly with the ORIGINAL CREDITOR, without the involvement of any external collection agency or law firm.
  • Debt purchasers were involved in only 12 of the 568 settlements, or roughly 2% of the total. (Contrary to popular misconception, it’s not always easy to settle with purchasers, and this end of the industry is where many lawsuits take place.)
  • Clients reported a total of 11 creditor lawsuits. This translates to a risk factor of 1.9% per account.

Let’s put it all together. What does the above data tell us?

  1. ZipDebt clients work quickly, settling about four out of five accounts before the charge-off deadline, and nearly all accounts within a 12-month timeframe.
  1. ZipDebt clients negotiate most of their settlements (66%) with the original creditor, meaning fewer situations where it was necessary to negotiate with a collection agency or law firm.
  1. The average settlement result of 32.2% blows the doors off the results published by ANY traditional debt settlement firm (assuming that you can FIND any published results!).
  1. The legal risk for a properly coached DIY debt settlement client is FAR BELOW that of clients enrolled in traditional 36-month debt settlement programs.
  1. All of the above was accomplished with a fee structure that represents a small fraction of what most companies charge.

Do you want to settle your debts quickly, pay less money out of pocket, eliminate steep “negotiation fees,” and reduce your legal risk to the maximum extent possible? If yes, then don’t hire a third-party debt settlement company! Get the education, training, and coaching support that you need to be successful at this process on your own.

If you think debt settlement might be right for your situation but would like more information after reading our free materials, please feel free to request a 20-minute phone consultation.

ZipDebt vs. Traditional Debt Settlement – How Do We Stack Up Against the Competition?

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In my blog post on “The Future of Debt Settlement,” published a little over a year ago, I assessed the state of the debt settlement industry in the wake of the FTC rule-change that banned the advance-fee model for third-party debt settlement. To summarize, in that earlier post I described the in-progress breakup of the industry into three different groups: (1) companies closing down or suspending all marketing operations, (2) companies seeking loopholes that still permit advance fees to be charged, and (3) those firms attempting to comply in good faith with the FTC rule-change.

It’s difficult to put statistics to the number of closures, since the debt settlement industry has always been murky in terms of publicly available information. But one metric is membership in the industry’s trade associations, and by that standard a large majority of such companies have gone out of business. USOBA (U.S. Organizations for Bankruptcy Alternatives) has stated that its membership roster has declined from around 200 to only 30 companies. And the AFCC (American Fair Credit Council) is down to about 35 firms from an initial 220 members. These figures represent a membership decline of approximately 85%. However, since both of these organizations published new policies requiring their members to be fully compliant with the FTC ruling, it’s possible that many of these former member-companies are still in existence and have merely dropped their trade association memberships as they continue seeking “creative” (i.e., non-compliant) revenue sources.

What about those “loophole diehards,” as I call companies still trying to charge hefty upfront fees? There are a number of firms still attempting to exploit the so-called “attorney model” for debt settlement, on the theory that attorneys are exempt from the FTC ruling. At least one of these firms has been on the receiving end of multiple lawsuits filed by Attorneys General from various states, and while they are still a big problem for unwary consumers, it is only a matter of time before we see such companies exit the marketplace under regulatory pressure. That will leave two essential choices for the consumer seeking relief via debt settlement: the “FTC-Compliant” firm and the do-it-yourself approach.

In a March 2011 blog post titled, “Consumers Should Still Be Wary of the New ‘FTC Compliant’ Debt Settlement Companies,” I explained why people should still watch their backs when hiring a firm that claims to be FTC-compliant. Please refer to the March post for full details, but briefly, there are four key reasons why “buyer beware” still applies even to the companies not charging upfront fees:

1. Program durations of 36-48 months are still being routinely quoted by these companies. Take that long to settle your debts, and the odds are heavily in favor that you WILL be sued by one or more of your creditors. (At ZipDebt, we coach our clients to complete their settlements in a 6-12 month timeframe, which greatly lowers the legal risk associated with this approach.)

2. The major credit card banks did not suddenly turn around and start working with these firms after October 2010. So this means consumers need to wait past charge-off (after 6 months of non-payment) for their “professional negotiator” to even begin the process of settling their accounts. (At ZipDebt, approximately 90% of our clients’ settlements are negotiated before charge-off.)

3. Hire a third-party debt settlement company, and you can expect a much higher risk of legal action, not a lower risk. Consumers often get the false impression that they are “protected” by enrolling in a debt settlement program with an established company. Not true! In fact, just the opposite is true! If you wanted to get sued sooner rather than later, just hire a third-party debt company who sends out a Power-of-Attorney to your creditors. (At ZipDebt, we do not use POAs. Clients negotiate on their own with our guidance and coaching. Our clients have a fraction of the legal risk of clients enrolled with third-party firms.)

4. How do you know your debt settlement company will still exist a few months from now? With companies closing left and right, there have been numerous examples of clients being left in the lurch with no idea what progress (if any) has been made on their debt accounts. The financial pressures that companies are experiencing are enormous, as they attempt to convert from charging 15% front-loaded, to a percentage-of-savings fee on the back end. Many (if not most) firms attempting this conversion to FTC-compliance won’t be around for another year. They have made it to this point by using the revenue from “grandfathered” clients enrolled prior to 10/27/2010, where the fees are still coming in advance. Those revenue streams are drying up now, and 2012 will be a very tough year for most of these companies. Many will not survive another year of these market conditions. Why hire a company if you aren’t sure they will be there when you need them most?

ZipDebt pioneered the approach of do-it-yourself debt settlement combined with professional training (via audio CDs) and live coaching (delivered via email and telephone). Our results are published here and here. (Note: In 2012 we will publish updated statistics.) We challenge readers to find a better published track record anywhere in the debt settlement industry. We believe that ZipDebt clients settle faster for less total money out-of-pocket vs. ANY competing company or approach other than Chapter 7 bankruptcy. Of course, good luck to anyone trying to find the published track records of other companies in this industry to compare us against. Even today, the vast majority of companies do not publish their results at all! And the ones that do only disclose what they are required to, instead of a more detailed analysis of what is actually happening with their clients. When you examine the results of those few firms that actually do provide this type of data, it becomes immediately clear that traditional debt settlement programs result in higher legal risk and higher total cost to the client than my ZipDebt approach. (Note to skeptics: Please feel free to provide published data to the contrary, but I will not be holding my breath waiting for you!)

As with any business model, when you are successful, you see a steady stream of others trying to ride on your coattails and exploit your hard work for their own greedy ends. There’s an old saying: “Imitation is the sincerest form of flattery.” But whoever said that was not the owner of a business that has been ripped off countless times by copycats and quick-buck artists. For example, I’ve had people take my 32-page report and just sign their name to it. Others have settled a few debts based on my advice, then try to set themselves up as “experts” in debt negotiation. Some have written books or e-books based on my material, without any type of credit or source citation. Still others have set up DIY debt settlement websites based on “coaching,” with training materials that sound all too familiar. And so it goes.

Again, BUYER BEWARE! There are at least half-a-dozen active websites attempting to copy my business model. How do you evaluate the difference between ZipDebt and its competitors and make the right choice?

How to Compare ZipDebt to Other DIY Programs

• BBB Ratings – A+ for zipdebt.com as an accredited business, vs. C, D, or F ratings for competing firms (or NO ratings at all, meaning it’s a very new company).

• Moneyback Guarantee – ZipDebt offers all programs with a 365-day moneyback guarantee, compared to 30 days for most competing firms (not enough time to properly assess the information).

• Time in Business – I have been assisting consumers with debt settlement since 1997, and ZipDebt has been online since 2004, far longer than any of the copycats.

• Who Are They? – I operate with full disclosure and provide detailed information about who I am and my background in this industry. Compare this to the faceless “corporate” websites offering DIY programs where you have no idea who is behind the product.

• Live Coaching – We deliver coaching via email and telephone, tailored to the client’s specific list of creditors and unique financial circumstances, not just generic advice provided via online forums or blogs.

• Published Track Record – We publish our results so clients have proper insight into what can actually be achieved with this approach. Good luck finding published results from ANY competing DIY solution.

• We Do Not Refer to Third-Party Companies – We do not receive any type of compensation for “up-selling” from DIY to the far more costly third-party programs the way some other so-called DIY sites do. We only do DIY-with-coaching, and we never refer prospective clients to ANY traditional third-party settlement firms.

We’re confident that once you’ve done your research, you’ll agree that ZipDebt is the ONLY choice for do-it-yourself debt settlement, and in fact, we are the most prudent and rational choice for debt settlement in general. To learn more about our approach, please read our free 32-page download, “How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy.” You’re also welcome to request a free 20-minute phone consultation. We’ll give you an unbiased recommendation on whether or not this approach is suitable for your financial situation.

Debt Settlement Letters – Myths & Misunderstandings Galore!

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In my 14 years as a debt settlement professional, I’ve reviewed thousands upon thousands of debt settlement letters. Last year alone we had about 1,200 of them to review and approve on behalf of our clients. If there is one subject I know well, it’s how to document a settlement! There is nothing especially difficult about it, but I continue to be astonished at the amazing amount of bad information floating around on the Internet about this subject. In this blog post, I will set the record straight. If you want advice on how to protect yourself during a settlement transaction, you’ve come to the right place.

A word to the wise: You can either listen to someone like me, who reviews settlements on a DAILY basis, or make your decision based on some discussion forum where amateurs rule the day and the occasional “expert” weighs in with his or her opinion. I have seen cases where the exact opposite of the correct advice was given by so-called experts. So ignore my advice at your own risk!

1. NO LETTER, NO DEAL, NO EXCEPTIONS – EVER!

I have only one unbreakable rule for this game we call debt settlement. No letter, no deal, no exceptions, ever! In the course of negotiating settlements, you will sometimes run into lazy or misinformed debt collectors who refuse to grant a proper letter. They may use a variety of excuses, such as “There isn’t time and we need to get this handled today,” or my personal favorite: “This is a recorded line, sir. It’s all on tape, so you won’t need a letter from us.” This, quite frankly, is nonsense. If there were a problem later, how would you ever obtain a copy of that recording? You’d have to file a lawsuit against your creditor and obtain it through the discovery process. Good luck with that approach! It can be a real heartbreaker to think you have a good settlement, only to have the creditor take your lump-sum and treat it as a regular payment on the full balance and later deny ever having approved a settlement. Without a proper agreement letter, that is precisely the risk you take. The good news, however, is that getting a settlement letter is easy enough to accomplish.

The most important point to bear in mind here is that a settlement is a CHANGE IN CONTRACT between you and your creditor. The creditor’s own agreement language (i.e., the fine print on your credit card application) will always insist that any change to the agreement must be approved by the creditor and put in WRITING. So when necessary, you can apply some verbal ju-jitsu and use the creditor’s own policy to get what you need. When verbal agreement has been reached but the collector is balking at sending a letter, take this approach:

YOU: “If I accept this settlement it will modify the terms of my contractual agreement with XYZ Bank, correct?”

REP: “Yes.”

YOU: “Well, doesn’t the fine print in your original agreement state that any changes must be made in writing?”

REP: “Um, uh, let me get my supervisor for you.”

Escalate politely if necessary, but stick to your guns all the way up the food chain. If you don’t have a proper settlement letter, then it’s your word against theirs and you should not fund the settlement, period. By following this simple rule, you will save yourself a lot of grief.

2. FAX COPIES ARE FINE

The majority of settlement letters are forwarded via fax, and this is totally fine for the purpose of documenting the transaction. The creditor may or may not follow with a hard copy by post, but the fax copies have stood the test of time and consumers have been able to safely rely on this method for years. I cannot think of a single instance where a settlement was later disputed by a creditor when the only issue was documentation via facsimile rather than hard copy.

3. YOU WANT IT ON THEIR LETTERHEAD, NOT YOURS!

In the past decade-plus, I have overseen more than 10,000 settlements. In ALL cases without exception the agreement was documented on the LETTERHEAD of the CREDITOR, collection agency, or collection attorney representing said creditor, and NEVER on the consumer’s own letterhead. This is the correct method for the consumer handling their own negotiations, and it’s also the method employed by virtually all professional negotiation firms. Only inexperienced negotiators use the method of trying to get creditors to sign self-generated settlement letters.

There are books, e-books, websites, and a number of online “coaching” programs (aka inexperienced people trying unsuccessfully to copy what I do at ZipDebt) that claim you should mail a stream of offer letters to your creditors. This is a BAD IDEA! I don’t care if there are a few examples here and there where a creditor did agree to sign an offer letter as proposed by the client. The problem is that 99% of the time this method will FAIL. The reason is that all the major credit card banks have existing template language for documenting their settlements. The language has been pre-approved by the creditor’s legal staff. So you’re not going to get a manager at one of these banks to sign your stupid settlement letter and agree to your terms! And by insisting on doing it this way, you’ll be potentially costing yourself good settlements.

The correct technique is to verbally negotiate your settlement by telephone, and then to request a proper settlement letter be faxed to you before you present payment.

Aside from the reality that bank executives won’t sign off on your settlement letter, another reason I am opposed to working it the other way is the FOOTPRINT problem associated with any letter writing campaign. If you are using some type of “settlement system” that you purchased, think about how creditors will react when they start receiving the exact same letter over and over again from lots of different consumers. Their computer systems will catch on to this quickly, and before long, these letters will be classified as THIRD-PARTY generated. That is the kiss of death for a good settlement. Once the bank realizes you are using a system – a system that they are very much NOT in favor of! – then you can expect your account to be flagged for a different track of collections than the usual one. I’ve even seen this approach trigger early lawsuits or arbitration filings by the creditor.

Let me put it this way: Sending a series of pre-formatted settlement offer letters to your creditors is like repeatedly whacking a sleeping rhinoceros on the top of the head. Sooner or later the beast is going to wake up and have you for breakfast!

4. ANATOMY of a GOOD DEBT SETTLEMENT LETTER

Here is a simple checklist on what a proper debt settlement letter must include:

• The letter must be on the bank or agency’s letterhead
• The letter must be dated
• Your account number should be clearly identified (it’s fine if they only show the last 4 digits)
• The transaction must be described as a “settlement” or “settlement in full”
• Amount of settlement payment is stated correctly
• Payment due date(s) are stated clearly and correctly
• Individual payments sum correctly to the total amount to be paid on the settlement

Notice what this list does NOT include. It does not include a requirement for a physical signature. Surprised? Don’t be. About 99% of settlement letters don’t get physically signed. Trust me on this. It’s ok. Just like I have never seen a single settlement go sour because the creditor sent the letter by fax, I’ve also never seen a settlement go bad because the letter lacked a physical signature.

Guess what else is missing from this list? You’ll notice that there is nothing about how the settlement gets reported to your credit report. Why? Because it doesn’t matter. You can argue until you are blue in the face, and you’ll never get a creditor to alter the language by which it reports settlements, nor should you care in the first place. All settlements get reported as “settled for less than full balance,” or words to that effect, and they carry the same credit score code no matter what words are used. If it doesn’t get reported correctly, you can dispute the entry later on with the three major credit bureaus. But you can forget trying to have your creditor forgive 50% or more of your debt and also help you clean up your credit at the same time! It simply doesn’t work that way, and many an amateur has blown a perfectly good settlement over this point. Negotiate your settlements, THEN worry about your credit!

If you need professional advice on documenting your settlements, steer clear of the myths and misunderstandings you’ll find online, and give us a call at 866-515-2360. What we do is not based on theory, but rather on what has WORKED and has proven EFFECTIVE for thousands of clients in resolving problem debt.

NEW! DOCUMENT REVIEW SERVICE
Update: October 31, 2013


ZipDebt now offers document review for settlement letters and collection letters or notices. Have your document reviewed by Charles Phelan for a one-time low fee of $100. One business-day turnaround. Click here for more information or to order document review.