Debt Settlement Sales Claims

In April 19, 2007

Consumers often get in touch with me after they have already talked to one or more debt settlement companies. They are attracted by the idea of using the do-it-yourself approach to debt settlement, especially when they see how much they’ll save on the fees charged by settlement companies. However, there’s one common claim made by the reps who sell debt settlement services that sometimes discourages people from using the DIY approach.

The sales claim in question is usually stated as follows:

“We have thousands of clients, and we bundle our debts and settle dozens (or hundreds) of accounts at the same time. So we can get a much better deal for you because we’re doing these settlements in large blocks. You’ll never be able to get as low a percentage on your own as you will through our service.”

With apologies to some of my friends in the settlement industry, it’s time to explode this little myth. The claim, as stated above, is marketing hype and that’s about all. Facts are facts. And the simple fact is that debt settlement companies have NO relationship with the major credit card banks. I don’t know of a single settlement company, even among the very largest firms, that “bundles” debts when they settle with the major banks. In fact, very few settlement companies actually settle with the credit card banks anyway.

The reason is because clients are mostly paying fees during the first year, and rarely have anything saved up to settle with. And since the banks write off the accounts at 180 days of delinquency, hardly any accounts get settled directly with the banks these days. The majority of these accounts are getting settled AFTER charge-off (an industry term meaning a written-off debt) through third-party collection agencies, collection attorneys, and debt purchasers.

Bear in mind, this is NOT the case at all when you do it yourself. When you’re not paying sky-high fees, usually 15% or more of the total debt, then you can build up enough savings in the first six months to handle at least some of the accounts directly with the original creditor.

Taking this a step further, use of a settlement company can actually result in a far worse settlement than the consumer can get on their own. One major credit card bank will immediately forward your account to a local collection attorney with authorization for a lawsuit if they receive ANY notice from a debt settlement company. Once that happens, you’re lucky to get an 80% settlement!

Just this morning, one of my clients reported a settlement directly with this same bank at 35%. So the sales claim is certainly false when this creditor is involved. The same problem now exists to varying degrees with several of the other top ten credit card banks. Settle on your own, and you can get settlements ranging from 20% to 50% depending on the bank in question. Use a settlement company, and expect to see 60%+ settlements with those same banks.

To be completely fair, there is some truth to this sales claim when they negotiate with smaller third-party debt collection agencies. A lot of the people who do the negotiating for settlement companies are former debt collectors, and they often have contacts with various agencies. They also know the jargon and can comfortably speak with their counterparts at these collection agencies. So it’s possible that a professional negotiator will get a 35% deal with a collection agency where a consumer on their own will get a 50% deal instead.

But – by the time you add back the 15% fee charged by the settlement company – you’re right back where you would have been anyway.



  1. You are right in many cases. One thing you forgot to mention is that there are law firms that practice ebt settlement as well. So whats the difference for one a law firm can keep the collection agencies off of your back, two they are alot more reputable than your standard “debt settlement company” they must compy with the bar association of their state. However you are right there is no such thing as clumping all of these debts together this is just not the case. But the creditors do speak much differently to a professional negotiator than they do with the average consumer and can usually get a very nice settlement

  2. Charles says:

    Sure, there are debt settlement law firms out there, and
    some of them are very good at what they do. However, some of these firms
    charge 25% or more of the enrolled debt. Many, if not most, consumers
    simply can’t afford to pay fees of this magnitude. Also, being an
    attorney in one state does not offer any special protection to a
    consumer in another state where that attorney is not licensed. It’s
    simply not necessary to hire an attorney to settle your debts. Most
    consumers can handle it on their own with a little training and

  3. Chris says:

    It’s true you don’t need an attorney. I have settled two debts in 10 months, using Charles’ program. Have two more, and the natives have stopped drumming (i.e., quit calling) making me a bit nervous, but I’m way ahead of the game just paying off those other two. If I’d used a debt settlement company, I wouldn’t have had the cash to pay off those other two (huge) balances. It would have gone to the fees that the debt settlement companies take UP FRONT and right off the top.

  4. Charles says:

    The above comment by Chris points out exactly what I’ve been saying
    about debt company fees. They are at the WRONG end of the program. In
    the old days, we used to charge a very small retainer up front, but
    the main fee was based on a percentage of the savings achieved during
    the negotiation. So the fees were based on success, and did not interfere
    with the client’s ability to accumulate funds for some early settlements.
    Nowadays, it’s a rare company that operates this way, and the result is
    that very few settlements take place during the first 12 months clients
    are enrolled in a third-party debt settlement program. Skip the fees! Learn
    how to do this yourself. You’ll be out of debt faster, and you’ll have
    more control over the process.

  5. Jim says:

    Ok, so I have been with a debt settlement company for about 9 months now. Now I am concerned that it may be better to get out and try to do it on my own. I am not asking for legal advice, but just checking to see if anyone has been in my situation and has some person to person advice for me. I have already paid 750 in fees and they charge me about 80 a month in fees as well.. Not sure what to do as I feel like I am still sinking in debt.


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Debt settlement is just as much about managing risk as negotiating savings. The 36-48 month programs offered by most debt companies have high risk for collection lawsuits. It's far more effective to "fast track" debt settlement in 12-18 months.

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Instead of paying fees as high as 20-30% of your TOTAL DEBT, it’s far more affordable to work with a professional consultant who only charges 15% of the SAVINGS achieved via the negotiations. This approach saves you money and creates a win-win scenario.

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