Here at ZipDebt, I’ve been hearing the same questions on a daily basis:
“What effect is the economic crisis having on debt settlement?”
“With everything going on with the banks these days, is it easier to settle, or tougher?”
“What effect will the bank bailouts have on debt settlement?”
The pattern has already started to become clear — 2009 will be a great year in which to settle credit card debts. The “catch” is that you have to be a good candidate for debt settlement in the first place, and that has little or nothing to do with what’s going on in the economy.
Let me put it this way: It doesn’t matter how “easy” it gets to settle with one bank or another. If you don’t have money to settle with, then it doesn’t matter very much, does it? The client’s ability to raise settlement funds will ALWAYS be the #1 factor in achieving a successful outcome.
That said, there are definitely some interesting things going on with the banks these days. As I discussed in a previous post (11/3/08), we’re seeing more “rent-an-agency” situations, where the original creditor uses outside collection labor earlier in the process than before. However, that factor alone is not very significant, since the settlement results are approximately the same either way. (OK, third-party collectors can often be more annoying than most bank employee collectors, but that’s just the way it is. If you get a good settlement, who cares how rude the collector was about it?)
One of the positive effects, in terms of settlement, is that collection agencies seem more willing to cut to the bottom line. Often, collection agencies receive assignments for three months, and it was normally the case that you had to wait them out until near the end of the assignment in order to get a favorable deal. Nowadays, you can often get a good settlement soon after the file is placed with the agency. Many collection agencies are hurting because the home equity ATM machine has dried up, and all the threats in the world can’t change the fact that consumers simply don’t have money to pay the debt with.
Some effects of the financial crisis seem to be affecting creditors across the board, while other effects are specific to an individual creditor. For example, some banks have previously been willing to stretch settlements over 4-5 months. Across the board, we are seeing less of that now, because Federal guidelines indicate that losses must be declared within 90 days of settlement. This translates to fewer 4-5-month settlements and a lot more 3-month plans, because the banks don’t want to risk their eligibility to receive bailout money and they are being more compliant. One major creditor has changed structure to become a bank (instead of a non-bank financial company), and that’s led to a major push to clean up their books on delinquent accounts. Some superb settlements are temporarily available with this creditor, and also higher risk as well. So it’s a mixed bag in terms of how individual companies are reacting.
Someone asked me the other day, “What will happen if the banks are nationalized?”
The answer is, “I don’t know.” Nobody knows. Not even the banks – especially the banks! It could make it much easier to settle, or it could add red tape that makes it more difficult. We simply do not know what effect nationalization would have in general.
Folks, I’ve been at this game since 1997, and I have seen a lot of changes since then. But one constant theme remains – it’s been “business as usual” that entire time. The process involved in obtaining a settlement is basically the same as it was a decade ago. There have been a lot of twists and turns, particularly with respect to the debt settlement industry itself, and as time has gone by, it makes less and less sense for a consumer to hire a third-party company. Ten years ago, I would have said that it would be extremely foolish to attempt settlement on a do-it-yourself basis. Today, I would say that it would be extremely foolish to hire a settlement company when you can do a better job yourself!
So things do change. But all of the individual factors, whether small (like 3 months versus 4 months to pay a settlement) or large (like the tidal wave of credit card debt that is pushing into default in 2009), will always be less relevant the client’s ability to make a reasonable offer.
If you are carrying an unsustainable level of credit card debt, and you would otherwise be facing Chapter 13 bankruptcy, then consider the debt settlement strategy as an alternative. The banks are settling debts on a consistent and predictable basis. The conditions are in place for 2009 to be a very good year for this strategy. Tackle your problem now, while you still have some resources to work with. Don’t be one of the people who say, “Gee, I sure wish I had listened to your training course a year ago, when I still had some money to settle with!”