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.