Charles Phelan

Just a short post for September, on the subject of consumer credit card debt as reported in the mainstream news media. In next month’s column, I will write more about recent developments in the debt settlement industry in the wake of the recent FTC ruling.

During the financial crisis of 2008-2010, there was a steady flow of articles reporting that American consumers had suddenly discovered frugality, reduced household spending, started paying down debts, and increasing savings. For example, a recent article titled “Consumers Continue to Pay Down Debt,” stated that consumers were “digging out from underneath their mountain of debt.”

As I have read these rose-tinged headlines over the past year or more, I have scratched my head in wonder. That is surely NOT what I have been seeing out here in the field! From my perspective, consumers are not paying off their balances, at least not the folks I’m talking to. Instead, they have been forced to default on their accounts in large numbers due to their own personal financial crises. Millions of Americans have underwater mortgages, or have lost their jobs in the recession. So these headlines and stories claiming that “consumers are paying off their debts” always seemed wrong to my ears.

It turns out that my instincts were correct. We are finally seeing some published numbers that expose the truth behind the scenes, and a major article on this subject recently appeared in the New York Times. According to a recent study by CardHub.com, credit card debt for the second quarter of 2010 decreased by around $12 billion compared with the previous quarter. But charge-offs by the major banks were $21.8 billion during that same timeframe. Since the drop in outstanding debt is *smaller* than the amount that was written off, this means that consumers actually ADDED $9.8 billion of debt during that period. Consumers are not “paying off their debts,” they are DEFAULTING on their debts in record numbers. It’s the exact opposite of what many have been reporting in the financial media. The “deleveraging of the consumer” that we keep reading about is just a mirage, a combination of sky-high default rates combined with the aggressive lowering of open credit limits by the major banks.

In the NYT article, one specific number really jumped out at me – the figure of $832.2 billion for total credit card debt. At the peak of the madness in 2008, we were at approximately $957 billion of credit card debt. So over the past two years, the banks have written off $125 billion, give or take a few billion. That’s a lot of bones, but what startled me is that American consumers *still* owe more than $800 billion on their credit cards! When I recorded the first version of my seminar in 2004, that figure stood at $735 billion, and I was already talking with alarm about “The Great American Debt Explosion.” So have we really made that much progress? Yes and no. Obviously, we’re in better shape with the current $832 billion figure than the previous $957 billion total. But it’s quite clear that a massive amount of consumer debt is sitting out there yet to be resolved. With more than $800 billion of debt still remaining, I predict that debt settlement will remain a viable option for years to come for consumers otherwise facing Chapter 13 bankruptcy.

On July 29th, 2010, the Federal Trade Commission (FTC) announced new regulations for the debt settlement industry. For background, please see the following ZipDebt blog posts:

FTC Workshop on the Debt Settlement Industry
Debt Settlement Industry in the Crosshairs
Debt Settlement Industry – Big Changes Coming Soon?
Will Debt Settlement Still Exist in 2011?

Frankly, the debt settlement industry should have been regulated years ago. The new rules were far too slow in coming for the tens of thousands of consumers who have been ripped off by shady debt settlement companies. But at least the day has finally arrived. As of September 27, 2010, new disclosure requirements go into effect that will ban much of the deceptive debt settlement advertising that has saturated media airwaves in recent years. And even more importantly, as of October 27, 2010, firms will no longer be permitted to charge fees in advance. This will put an end to the practice of charging 15% of the total debt before meaningful work has been performed. Companies will be required to actually obtain settlements before earning a success fee. (Oh, the horror!) In order to survive the coming changes, companies will be forced to revert to a fee model based on percentage of savings – most likely the old 25% of savings method originally used in the “good old days” of debt settlement.

What will be the practical effects of these new regulations on consumers looking to debt settlement as an option? There are some rather obvious implications, as well as some potential effects that are not readily apparent at first glance.

Among the obvious effects are an expected sea change in the way debt settlement services will be advertised. Yes, I’m sure that some of the sharks and cowboys will go right on advertising the same old deceptive pitch after 9/27, but eventually two or three large marketing firms will get shut down by the FTC. A couple of major enforcement actions will finally convince some of the more stubborn players out there the game really has changed for keeps. Once the drip-drip-drip of false advertising starts to dry up, then debt settlement sales “leads” will also start to dry up and the front-end marketing machine will die down. Many of the call-center marketing firms that entered the field to exploit recent economic conditions will abandon the industry and move onto selling some other type of product or service.

Next, and also obvious — after the advance fee ban goes into effect on 10/27, numerous firms will still be out there operating on the old upfront fee model, or they will try to exploit non-existent “loopholes” that still permit the big advance fees. Here again, a few major enforcement actions to take down non-compliant firms will probably happen before 2010 is over, or early in 2011. I’m sure the FTC wants to prove its point, so look for them to take down one or two firms for continuing to charge non-compliant fees. I also predict that at least one major enforcement action will involve a settlement firm operating on the so-called “attorney model for debt settlement.” Many people in the industry falsely believe they are safe if they have an attorney at the head of their settlement firm. But the FTC has specifically said that the new rule *does* also pertain to attorney debt settlement, so there is no such loophole. Still, some idiot will try, and get shut down for it, thus providing a nice test case for the FTC.

Moving forward past the massive turmoil that will happen well into 2011, there will rise to the top several larger firms that are well capitalized. These firms will make a legitimate attempt to implement debt settlement in large volume using the percentage-of-savings model. The FTC ruling does not cap the percentage of savings fee structure. So provided the much more harsh Schumer bill or the House equivalent (which would cap fees at an industry-killing 5-10% of savings) does not pass through Congress and there are no further fee restrictions implemented, then at least a few reputable large settlement firms will try to remain standing. Some have already announced their intention to comply.

Another potential consequence of the advance fee ban, perhaps less obvious than those discussed above, is the coming shift in marketing demographics for debt settlement. The key question for debt settlement executives will quickly become – How can we actually deliver on our promises to effectively reduce consumer debt through third-party negotiation tactics, and still earn a profit? Once these firms start having to actually EARN their fees (instead of just collecting up front while clients drop out left and right), the target demographic for debt settlement will shift *drastically*. Until now, *anybody* with a $10,000 credit card debt load was “fair game” for industry sales reps. Most companies sold the service based on the long-obsolete 36-month debt settlement program, or worse, fairy-tale 48-60-month programs. All of that silliness will disappear as companies compress the timeframe in which they permit clients to stretch the program. With all the fees at the back-end, the 36-month programs will gradually shrink to shorter and shorter durations. Companies will actually start to perform suitability analysis before taking on clients, to ensure that they are a good fit for the settlement strategy. In short, the reputable firms left standing will quickly begin to learn all the same things I learned many years ago – settlement only works if the client is a good fit for it financially. Just being in debt is not sufficient qualification! The result will be that debt settlement will only be presented to consumers who have a reasonable shot at making it work effectively, and this will be a fraction of the demographic pool the industry had originally targeted. In other words, the debt settlement industry will shrink drastically over the next 1-2 years, leaving only a few large firms and a greatly reduced number of small to mid-sized firms, down from well over 1,000 companies today.

No matter what they do, however, even the legitimate debt settlement firms will still be swimming against the tide. Irreparable damage has been done to the industry’s reputation due to the extremely shoddy marketing practices of the past 10 years. The top ten major credit card banks have taken a unified stand against third-party debt settlement. They won’t talk with these firms anymore. So even the client of these “cleaned up” debt settlement firms will be working at a SEVERE disadvantage. Clients of debt settlement firms will still be required to wait beyond charge-off before the majority of their debts can be settled. This enormous handicap automatically drags out the process and places the client at much greater risk of legal action. Unfortunately, in the current banking environment, hiring a debt settlement company is rather like calling an electrician to come repair your defective house wiring, and then being told the job can only start *after* the fire has already taken place!

There is at least one other important potential consequence of this ruling that might not be apparent at first glance, until you take a deeper look at the economics of trying to run a debt settlement company with no front-end revenue. There remains one possible method of getting some revenue at the outset. The FTC has provided an exemption for “products.” This was a wise exemption, mind you, because any rule change that tried to include books, tapes, CDs, etc., would automatically lead to First Amendment issues. Basically, the lawyers would have had a field day, and any such provision would have been stricken by some court ruling anyway, so the FTC left it alone in order to not weaken the main elements of the rule change.

What does the “products” exemption mean in practical terms? Well, it’s good news and bad news. It’s quite good news for me personally, and ZipDebt clients (current and future) as well, since it means that the ruling does not apply to my business model. I sell a product, and I don’t meet the definition of a debt settlement service provider anyway. So yours truly will still be able to help consumers navigate the mine field of credit card debt settlement, minus the big fees. And let’s face it people – 25% of savings is still a HUGE chunk of money! If you owe $80k, and the firm settles for 40% average, you will still pay $12,000 in fees for something you could have done yourself with a little proper training and guidance. I think $777 is a much more reasonable cost, don’t you? 🙂

So what’s the bad news then? Well, I hope I’m wrong, but I expect that we’ll now be treated to an onslaught of new “products” – debt-related e-books and DIY debt settlement kits, including knock-offs of my own training course, and so on. We’ll have a deluge of debt-settlement related products, all designed to give desperate companies some breathing room –something solid to base a little front-end revenue upon. Most of this material, of course, will be flimsy at best, and much of it will contain outdated advice. Therefore, it will still be “buyer beware” for people looking for help with their debt troubles.

In short, the FTC ruling will help consumers avoid the minefield of debt relief services, especially after some of the worst offenders are chased from the industry. But consumers will still need to do their homework, check Better Business Bureau ratings (you can check ours here), and perform proper due diligence before working with any third party debt settlement firm – especially one that just started hawking books, tapes, and CDs after July 29th!

Over the past several months, there has been a steadily increasing chorus of criticism directed at the third-party debt settlement industry – criticism by state Attorneys General, Federal Trade Commissioners, financial reporters, bloggers, consumer groups, the Better Business Bureau, and individual consumers. It’s been open season on debt settlement in the media, and the theme is always the same – “Debt settlement does not perform as advertised.”

Unfortunately, that is a true statement relative to the obsolete “36-48-month debt settlement program” still touted by most companies. It is, however, most emphatically *not* true with respect to the ZipDebt approach to debt settlement. For ZipDebt clients, debt settlement *does* work, and I will provide the hard data below to prove it to a skeptical audience.

First, let me explain what led to the decision to openly publish my results. During a Senate hearing in April 2010, the debt settlement industry was represented by the legislative director of USOBA (one of the industry’s trade associations), himself the chief operating officer of a settlement company. He was asked about the success rate of his own firm’s debt settlement program. You can watch a tape of the hearing and see for yourself. (Senator Rockefeller asks a point-blank question about industry success rates at approximately 94 minutes into the session.)

Now, you have to ask yourself. Where was the preparation? You would think the real dog-and-pony show would have started at that point, with slides, charts, and graphs showing how spectacular the results are coming from the top-notch companies in the industry. After all, this was a filmed hearing in the U.S. Senate, a perfect marketing opportunity! But that is not what happened. Instead, the executive fumbled about as though totally unprepared for that question, made a very bad joke about getting grilled by the Senator, and eventually quoted a figure of 34% without providing any visuals or other supporting data.

That’s it? A 34% success rate by the best and brightest of the industry?

Frankly, I seriously doubt that 34% of the people enrolled in traditional third-party programs actually complete the process. The expert witness for the GAO, which did an undercover investigation of debt settlement, qualified this assertion by stating that it appeared to be 34% who had “some or all” debt settled. Complaints filed by various state Attorneys General state that industry success rates are below 10%. But even if 34% is a true *success* statistic, it’s pathetic! Who wants to pay thousands of dollars in fees before anything even gets accomplished, in return for a 1-in-3 chance of success? With odds like these, why wouldn’t the average consumer want to take on the project themselves?

Clearly, success rates are the Achilles heel of the debt settlement industry. The long duration programs simply don’t work as advertised. People drop out left and right under mounting legal pressure, and this translates to abysmal results. But … this really got me thinking. How would *I* answer that question? You see, I have some sympathy for the poor fellow in front of the Senate hearing. It’s not an easy question to answer, partly because there are different ways to define “success” in the context of a debt settlement program. But I wanted an accurate measurement, not marketing hype. That led me deep into my database, which I had not really analyzed until now. (I’ve been too busy *generating* the data by coaching clients one-one-one for the past half-dozen years.) Now that I’ve taken a look at the results, I can truthfully report that my results blow the doors off anything else in the debt settlement industry.

To back up this claim, I will provide some hard data in two sections. Part A (ZipDebt Success Rates) will give exact figures for my success rate and document the methodology employed. Part B (ZipDebt Settlement Results for 2010) will quote my actual settlement statistics for 2010 to date.

Part A. ZipDebt Success Rates

First the data:

ZipDebt SUCCESS RATES (Cumulative) 2006-2009

1. Total Number of Clients @ 1576
2. Number of Refunds @ 40
3. % Refunds/Total @ 2.5%
4. Coaching Not Included (Basic) @ 252
5. Insufficient Contact to Determine @ 581
6. In Progress @ 63
7. Pool of Coached Clients @ 640

8. RESULT A_ COMPLETED @ 261
9. RESULT B_ 80% Finished @ 193
10. RESULT C_ 50% Finished @ 48
11. RESULT D_At least 1+ Settlements @ 99
12. RESULT E_Filed BK @ 39

13. BASE SUCCESS RATE (= RESULT A + B) = 71%
14. 50%+ SUCCESS RATE (=A+B+C) = 78%
15. SUBSCRIPTION SUCCESS RATE (A+B+C+D) = 94%

Success Rate Methodology

In what follows, I will lay out my methodology and provide definitions to avoid any confusion over terms. I want to make sure everything is fully disclosed so there is no suggestion of having “fudged” the numbers to make myself look good. I’ve mined my data very rigorously, and I believe that the results published here would easily withstand audit by a neutral independent third party.

The explanatory notes below match the header numbers in the above chart:

1. A total of 1,576 clients ordered during the period of 2006-2009. That’s not a huge number by the standards of a large debt settlement firm, but considering that I did about 95% of the coaching work myself I think it’s a pretty good total! Further, a majority of those clients who purchased coaching privileges were carrying very high levels of debt, with totals of $100k or more being commonplace. See Part B below for figures pertaining to the millions of dollars in debt settled during 2010 alone.

2. & 3. For the success rate calculation, refunds are treated as non-customers and subtracted from the total pool. From the total count of 1,576 orders, 40 people shipped the kit back for a refund. This represents a refund rate of 2.5%, which is extremely low for this industry and even for merchant websites in general. I wish it was zero returns, of course, but debt settlement is not for everyone, and that is precisely why I offer the course with a money back guarantee. I am very proud of such a low return rate, and I believe that this speaks well to the quality of the material provided.

4. The ZipDebt program is offered in three levels: Basic, Enhanced, and Premium. Clients who ordered the Basic Program did not purchase access to coaching privileges – only the training kit itself. Since I have no way to determine results for this group, they are excluded from the total against which success rates are measured. A number of Basic clients have later gotten in touch and reported that they had fully completed the process and settled all of their accounts. But since I am excluding all Basic clients from the pool, I have not counted these completions as successes. So if anything, these success rates are *under-stated*.

5. A number of people have purchased my program, had a little contact with me at the outset, and then gone off on their own to work the system. In cases like this where communication has been spotty at best, I have no way to measure success or failure for that particular client. Where there is no reliable means of determining actual status, these clients are excluded from the success calculation. (Obviously, I could send an email to everybody, going back four years, but I simply don’t have the staff resources to handle it and I’m confident that the remaining data speaks for itself anyway. If this publication prompts any former ZipDebt clients to get in touch with fresh results, I will adjust and update the data set accordingly.)

6. The “In Progress” category are clients with active coaching subscriptions who are still working through the Enhanced or Premium Program. Since it is too soon in the process for results to have been obtained yet, this group is excluded from the calculation.

7. The “Pool of Coached Clients” represents the net number of clients for which I have reliable data on settlement results, positive or negative. Total number of clients, less refunds, Basic (non-coaching), non-reporting, and in-progress clients yields the net pool of coached clients. The RESULTS categories are measured against this figure.

8. RESULT_A is self-explanatory. These are “Completed” clients who have literally reported that every single debt they intended to settle using the ZipDebt method *has* been settled to their satisfaction.

9. RESULT_B is a category termed “80% Finished.” These are clients who had settled approximately 80% or more of their debt load, as of their final report during the active coaching subscription period. In the vast majority of these cases, only one or two small accounts remained to be settled and the client felt they had already been armed with sufficient knowledge to finish the process without further paid coaching support. Clients in this category are considered, by definition, to have successfully implemented the program strategy.

10. RESULT_C is a category termed “50% Finished.” These are clients who had settled approximately 50% of their debt load, as of their last report during the active coaching subscription period.

11. RESULT_D is the reporting of “At Least One Settlement” during the active coaching period.

12. RESULT_E is either an actual report of a “Bankruptcy” filing by the client, or a financial situation so urgent at last contact that bankruptcy is the assumed outcome.

13. BASE SUCCESS RATE – This is the most conservative definition of “SUCCESS” relative to my program. The group of “Completed” plus “80% Finished” clients are all success stories. These are people who made the program work and achieved the desired outcome, or felt they had matters well in hand at the end of their service agreement. I am proud to announce that based on this simple criteria of “getting the job done right,” ZipDebt has a base success rate of 71%. For perspective on how truly amazing this is, please see the additional commentary below. The short version is that *no other program* can touch it – not traditional debt settlement, not credit counseling, not even Chapter 13 bankruptcy. ZipDebt wins, period, hands down.

IMPORTANT! A success rate of 71% does NOT imply that 29% of my clients were unsuccessful at the process of settling their debts. (See item #14 & 15 below.) In the case of traditional debt settlement firms that claim a 34% success rate, it DOES mean that 66% of people fail at the process. The key difference is that my average program duration is 6-12 months, versus 36-48 months for traditional settlement. So all that the 71% figure means, in relation to the other 29%, is that their coaching subscription expired while the process was still under way. Many people felt they had learnt enough from me to continue without renewing and paying for ongoing coaching support. So I’m confident that 71% would climb to a much higher figure if I had feedback from all of the people who were half finished with their settlements or had started reaching settlements at the time of subscription expiration.

14. 50%+ SUCCESS RATE—I think it’s fair to also look at the fact that people learn enough in their first 6-12 months with me to keep going on their own. Some people choose to renew to extend their coaching service, while others really take the DIY-spirit to heart and finish out on their own. Including clients who were approximately half done with their settlements upon expiration of the coaching service, the success rate climbs to 78%.

15. SUBSCRIPTION SUCCESS RATE—One of the biggest knocks on the debt settlement industry is that these firms do not provide VALUE for payment received. People pay these companies $5,000 or $10,000 in fees and receive very little in return. In contrast, ZipDebt’s fees have always been reasonable. Since 2006, my program price has been $397 (Enhanced) or $777 (Premium), a tremendous value by any standard. Considering that 94% of clients reported at least one successful settlement during their coaching subscription, I am very confident that virtually every one of these customers would agree that they received full value in return for the cost of their subscription fee.

How Good is a 71% Success Rate in Debt Settlement?

In 1941, Joe DiMaggio set a record with his 56-game hitting streak that stands to this day. Nobody has come close to Joe’s accomplishment. Or, if you’re a tennis fan, think in terms of Roger Federer reaching 22 consecutive Grand Slam tennis semi-final matches. “Impossible, incredible,” are words used by his rival Andy Roddick to describe such a superhuman feat of athleticism.

OK, I know I’m tooting my own horn here, but really and truly, my results are *that* good. No fooling. Let’s put some perspective to it. You’ve already learned that a representative from the debt settlement industry claimed a 34% success rate for his firm. I think we can safely assume that the data was tortured to the maximum possible extent to yield that result. 🙂 But taking it at face value means that traditional debt settlement is a losing proposition for the majority of clients. But it’s actually much worse than this, when you consider that the average debt settlement program is “designed” to last 36 months or longer. So over a 3-year average service period, the best these firms can do is a very poor 34% on their success rate. In contrast, the average duration using the ZipDebt method is 12 months or less. How good is ZipDebt’s 71% success rate with a one-year process compared to 34% over a risky three year program? No contest. ZipDebt wins, hands down. Traditional debt settlement results are not even in the same league.

What about non-profit consumer credit counseling? How does ZipDebt compare to that approach? The National Foundation for Credit Counseling (NFCC) – the umbrella organization that basically rules that side of the industry – has done such a good job of applying its lobbying dollars that virtually every news piece discussing debt solutions is biased toward pointing consumers to member agencies of this organization. If credit counseling is so widely popular and highly recommended, it must work very well, right? Wrong. Sorry, people. Credit counseling has a track record every bit as poor as traditional debt settlement. In fact, it’s hard to believe that people seem to have forgotten about intense criticism of the CCC industry earlier in this decade. It’s common knowledge within the counseling industry that approximately three out of four enrollees never complete the program. For reliable data on this subject, interested readers can view the material published by the National Consumer Law Center and the Consumer Federation of America. Readers need not take my word for the facts on this point. Credit counseling has about a 75% failure rate. It’s the biggest marketing con-job of the past decade, in my opinion. CCC is a good collection system for the banks, and that’s about it. How good is ZipDebt’s 71% success rate stacked up against this “fox guarding the hens” approach? Again, no contest. ZipDebt wins.

What about Chapter 13 bankruptcy? As difficult a decision as it might be, once a consumer goes forward with bankruptcy, surely the success rate is 100% from there, correct? Not so, not by a long shot. First, understand that I’m only referring here to Chapter 13 bankruptcy, where the debtor agrees to repay a percentage of the debt over a 5-year period. Chapter 7 usually fully discharges the debt within a few months of filing, so debt settlement is really only a logical alternative to Chapter 13 bankruptcy and not to Chapter 7. But once the debtor is hooked back into payments over the 5-year period (at a figure determined by the court), the inflexibility of the Chapter 13 system puts people under intense financial pressure. The sad truth is that two out of three debtors are “dismissed” from their Chapter 13 bankruptcy cases once they begin defaulting on the rigid payments required by the court. (This conclusion is supported by an academic study published in 2006). The bottom line is that Chapter 13 bankruptcy has a 67% failure rate. How good is ZipDebt’s 71% success rate stacked up against the ordeal of a five-year plan with a 1-in-3 chance of success? Another win for ZipDebt.

There is simply no question about it. Clients implementing the ZipDebt strategy enjoyed results greatly superior to clients of traditional debt settlement, credit counseling, and Chapter 13 bankruptcy.

Part B. ZipDebt Settlement Results for 2010

Given the superior results documented above, the next logical question is: Why does the ZipDebt method achieve better results? That’s actually a pretty easy question to answer. It comes down to TWO things, and only two things – RESOURCES and TIME. (Well, three things – counting the need for a really good coach!) I’ll explain exactly what I mean shortly, but first some data from 2010. The following figures represent settlement activity reported by ZipDebt clients who are in the process of negotiating with their creditors.

2010 ZipDebt Settlements (Client-Reported Activity)
January 1, 2010 through July 28, 2010

Number of settlements reported @ 737
Debt balances settled = $10,062,791
Amount paid for settlements = $3,362,930
Client savings = $6,699,861
Average account balance = $13,654
Average settlement result = 33.4%

There are numerous larger debt settlement firms boasting of having settled $100 million of debt over the course of several years. Well, big deal. In the first seven months of 2010 alone, tiny little ZipDebt with its client roster in the hundreds (rather than thousands like the big boys) has managed to settle $10 million. This is partly because our average client is carrying very high levels of debt, with figures of $50k being on the low side these days, and files with $100k or more being routine. The other very obvious point is that it’s easier to settle large debt balances when you don’t have to pony up 15% before any work gets done! Without the “drag” of company fees weighing down the settlement process, clients can move much faster to get the job done.

There’s more though. Take a close look at the average settlement of 33.4%. That is not a typo. The industry average for debt settlement is approximately 49%, including files settled after legal action had commenced. (I’m actually being generous here – the true average is probably more like 52-53%, the figure quoted by the USOBA representative during the Senate hearing.) Add the usual 15% in fees, and even *successful* customers of debt settlement firms are looking at a payout of 64%. Compare to 33.4% payout for ZipDebt clients (less either $397 or $777 for the program cost), and ZipDebt wins again – by more than 30%!!! That is one key reason why this program is far more successful than the competition – clients have to come up with a lot less MONEY!

One more extremely important point: Of the 737 settlements reported this year to date, 680 of them were negotiated by clients prior to charge-off. This means that 92% of these settlements were negotiated within 6 months of initial default. Of the remaining 56 settlements, all were settled after the charge-off deadline; of those 48 (7%) were negotiated via collection agencies working on behalf of the original creditor, and 8 (1%) were settled through debt purchasing firms.

What do these figures mean and why is this ratio so important? It means that ZipDebt clients move FAST. They get most of their settlements done before charge-off. Obviously, based on my results, they get much better deals this way! Of course, this is the complete opposite of what any settlement sales rep would have you believe. I do not have hard data for traditional settlement firms (since they do not disclose this information), but I estimate that 98% of settlements negotiated by debt settlement firms happen only *after* charge-off. The reason is because no bank will even talk to a debt settlement company anymore. Settlement companies do not have “connections” with the major banks. So they can literally do nothing for the first six months except take your money and wait out charge-off. This is why their ratios are the reverse of mine, and also why my clients do 30% better on average in terms of savings.

I believe I’ve proved once and for all that consumers are better off negotiating their own settlements. The key to being successful is to move quickly. Clients ZIP to the finish line with help from ZipDebt, get it? TIMING is the key to the track record achieved with this method. Get in, get your settlements, and get out! It’s really that simple. We aim to finish the project within the timeframe of 6-12 months, not 36 to 48 months.

Of course, in order to *implement* this “fast-track debt settlement strategy” you need the RESOURCES to do it with. This post is already long enough, so I will not attempt to detail the various strategies clients might employ for raising the needed resources. My point is that these results demonstrate clearly that it *is* possible for clients to negotiate their way out of debt, and that clients *are* finding the means to do so and accomplish their objective of debt freedom. It is my sincere hope that by publishing these results, consumers who might have been confused by recent media attacks against the debt settlement industry will understand that “debt settlement done right” is an entirely different ball game!

One of the program improvements I’ve had in mind for quite some time is a secure area of the ZipDebt website where active clients can log in to check on recent settlement trends per creditor. I could not put this type of detailed information in the audio training course itself, since settlement policies change too frequently – the information would be out-of-date shortly after publication. So I’ve provided tactical advice to clients via the live email and telephone coaching process included with the Enhanced Program and the Premium Program. It’s been very time consuming to relay the same information over and over, so to streamline the coaching process I’ve created the ZipDebt Member Area.

The ZipDebt Member Area is a secure login section of the website. The content of that part of the site will *not* appear on Internet searches, since the area is password protected and cannot be indexed by the search engines. Clients who have registered for access to the Member Area will be able to login 24 hours a day, 7 days a week, in order to get updated information on recent trends per creditor. The Member Area is not intended to replace the live email/telephone coaching included with the Enhanced or Premium Program, but rather to provide supplemental information. So if you’re laying awake at 2 o’clock in the morning wondering what your biggest creditor has been settling for lately, you can log in to the ZipDebt Member Area and see what I’ve written recently about the creditor in question. 🙂

The ZipDebt Member Area is only available to clients who have ordered either the Enhanced Program or the Premium Program. Since there is no coaching subscription associated with the Basic Program, clients who order only the Basic Program will *not* be entitled to access. However, upon upgrade to the Enhanced or Premium Program, access will then be granted. In addition, clients who order the Enhanced Program under the 2-payment option will be required to fully fund both payments before being granted access to the Member Area.

Please note that the ZipDebt Member Area is a *bonus* feature that is being added to the existing program content. I do reserve the right to grant access to this new feature to existing clients at my discretion. For existing clients who wish to access the new area of the site, please email [email protected] with your request for access, and we will reply with instructions. If you are within 30 days or less of expiration on your Enhanced or Premium Program coaching subscription, a renewal order will be required before access is granted to the Member Area.

For many years, I’ve been the “Lone Ranger” here at ZipDebt, fielding virtually all inquiries from prospective clients by myself. Although I do greatly enjoy speaking with people and providing the consultations, I finally got so busy that I needed some help. Finding someone who could handle the assignment and meet my high standards was no easy matter! So it is with great pleasure that I introduce Ms. Delpha Renard to ZipDebt fans and clients.

Some of our clients have already had the good fortune to work with Ms. Renard. But for those who haven’t met her yet, Delpha is a true professional in the debt settlement industry. I have personally known her for more than a decade. I’m elated to have Delpha on the team is because she honestly *cares* about her clients and works hard to make sure they are successful. She first worked with me way back in 2000, as we helped to build one of the nation’s first large debt settlement firms. And since then, Delpha has “worn all the hats” involved in debt settlement. Not only has she counseled thousands of consumers on how to tackle their debt problems, she was also the lead negotiator for a debt settlement firm and has settled millions of dollars of debt too. Very few individuals have experience both with counseling consumers and haggling on their behalf with creditors and collection agencies, so Delpha’s experience is quite unique in that regard.

If you are new to ZipDebt and have requested the free 20-minute consultation, you’ll be speaking directly with Ms. Renard, who handles those consultation calls for me. You will get straight answers to your questions, and an honest appraisal on whether or not our approach is a good fit for your situation. If you’re thinking about debt settlement, but just not sure if this approach will work for you, feel free to get in touch with us and you’ll get the straight story, minus the sale pitch!

In recent blog posts, I’ve written about the massive problems faced by the debt settlement industry, with various state Attorneys General and the Federal Trade Commission moving toward new rules and regulations that would severely impact debt settlement firms at large. Now, after new developments that occurred in April and May, it may be fair to ask the question, “Will debt settlement still exist in 2011?”

The short answer to that question is YES – the banks will still be settling debts next year, and the year after that, and probably for as long as there is any type of debt. People have “settled” debts for thousands of years. There is no law or rule that can change basic financial arithmetic, and the long-established financial concept of “present value of money” is what drives creditors to settle in the first place. So the banks will still be settling debts to reduce their losses, or to recover against losses already declared.

It may, however, be a fair statement to say that the debt settlement *industry* may no longer exist next year. In April 2010, there was a hearing in the U.S. Senate that was utterly devastating to the industry as a whole. Undercover investigators working on behalf of the Government Accountability Office (GAO) made phone calls to a number of prominent debt settlement companies. The callers posed as consumers seeking relief for their debt troubles. Some of the claims made by the sales reps were totally outrageous, such as statements that the program is government sponsored, or that the success rate is 100%. Since the list of target companies included several firms that are members of one or both of the industry’s trade associations, the usual protests of “We’re the good guys in the industry,” fell totally flat. The individual who represented the industry at the Senate hearing looked like a deer frozen in the headlamp of an onrushing freight train.

Within a matter of days of that public hearing, a bill was introduced by Senator Chuck Schumer called the “Debt Settlement Consumer Protection Act of 2010.” The bill represents total destruction for the debt settlement industry. No third-party firm could possibly survive the severe restriction on fees contained within this bill. For example, “enrollment fees” would be limited to $50 up front, with NO monthly service fees permitted. Goodbye 15% fees on the front end. Goodbye to $39-59 monthly “maintenance fees.” The only other permitted fee is 5% of the *savings* achieved during the negotiation, and that fee could only be collected *after* the negotiation had successfully been concluded. No full service company can possibly operate under this severely restrictive fee model in today’s business environment, so the bill is tantamount to a ban on the industry itself.

For about a week or two, everyone held their breath to see if the bill would be passed without modification. The initial attempt did not go through, but not because of any sort of opposition within Congress. Instead, it didn’t pass this time simply because it has not actually been considered yet. It merely did not make it as part of a “rider” to the massive consumer financial protection bill currently winding its tortured path through Congress. When a vote for “cloture” meant that no further amendments to the main consumer bill would be considered, the debt settlement industry cheered in unison. But the party was short-lived. Within a matter of days, a fresh bill was introduced, known as H.R. 5387, worded exactly the same as the Schumer bill. This bill will have to stand on its own merits and be debated as any other, but virtually no one in Congress cares about this industry, so some form of this bill will probably pass before we see the end of 2010.

When a Federal law is finally passed that regulates the debt settlement industry, what it means is that the majority of existing companies will simply fold up shop and move on to some other still unregulated sector of the marketplace. All of the “cowboys” who jumped into debt settlement after they could no longer sell toxic mortgage products will abandon the field. That is a very good thing for consumers, on the whole. But there is also a serious cost to the consumer. Many people will be misled into thinking that it’s no longer possible to settle debts with the credit card banks. And if the bill passes with the current fee caps in place, it will have the effect of pushing third-party debt settlement into the arms of the consumer credit counseling industry. Frankly, those agencies are simply not equipped to negotiate and settle debts effectively, nor will their masters (i.e., then major credit card banks who are their primary source of income) allow them to negotiate the lowest possible settlements. The consumer who enrolls into a “debt settlement program” via one of these non-profit CCC agencies will soon find that their idea of a settlement and the agency’s idea are two very different figures.

I will continue to monitor and report on these industry developments via the ZipDebt Blog. It’s going to be a very interesting remainder of the year. Stay tuned! 🙂