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DIY Debt Settlement Myth #6: It’s Safe To Take 36-48 Months To Settle My Debts

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This is the sixth in a series of posts discussing the most common myths about do-it-yourself debt settlement. Most traditional debt settlement firms are still quoting program durations of 36-48 months, sometimes longer, and clients are led to believe that it’s safe to take that long. By “safe,” I mean a low risk of lawsuit activity. After all, multiple lawsuits will tend to push a client into bankruptcy and therefore defeat the original purpose of using the debt settlement approach.

To begin with, let’s make the obvious point that it makes little sense to avoid a 3-5 year Chapter 13 bankruptcy when you’ll be fully exposed to collection activity (including potential litigation) for 3-4 years in a debt settlement program. In bankruptcy, your creditors cannot sue you to recover. That is not the case with debt settlement. The longer a debt settlement program lasts, the greater the likelihood the client will see one or more lawsuits before the program is completed.

Sales reps still quote 36-48 month durations (or longer!) because it provides the illusion of relief to the client. “You mean I can pay $600/month for 36 months and everything will be handled?” That’s the pitch anyway. The reality is that enrollment into such a program does NOTHING to stop the in-progress collection efforts by the creditors. Once an account rolls past charge-off after 6 months of delinquency, the risk of litigation becomes higher and higher as time goes by. In my experience, lawsuit risk climbs to an unacceptable level when you push too far past the initial 12-month period after default. Prior to that, there is still risk, but it’s usually lower risk and much more manageable.

Here at ZipDebt, our clients settle most of their debts before charge-off, and the remaining accounts are usually resolved within a total program duration of 12 months. Why are we so much more successful at expediting this process vs. the folks quoting 36 month programs? Simple. We are not focused on “making the sale” by presenting an option that is simply not effective on the long run. We prefer to push our clients to “go find the money” to settle quickly, and that is precisely what most of them do once they understand how the math works! We get our clients to start thinking in terms of the ASSETS they still have left to work with, and converting those assets to cash, instead of relying exclusively on the client’s monthly budget the way most companies do. We aim for fast relief instead of slow torture!

Our results speak for themselves. It’s very difficult to find published data on litigation rates by any of the prominent debt settlement firms. The incidence of lawsuit activity is something they really don’t want to be common knowledge among consumers. When you can find such data, however, you’ll see that clients enrolled in traditional 3-4-year debt settlement programs routinely experience legal action. It’s almost impossible to take 3-4 years to settle your debts without seeing one or more lawsuits. By comparison, for the 2.5 year period of 2010-2011-2012 (to date), ZipDebt clients have reported 2,251 credit card account settlements. Out of those 2,251 settlements, only 41 were reported as having reached the status of a lawsuit, less than a 2% incidence rate. A rather glaring difference!

Myth busted. 36-month debt settlement programs are long obsolete, and lawsuit risk climbs to near certainty on one or more accounts during the second & third year of default. Fast-track debt settlement, where the debts are all settled inside of 12 months, is a far superior approach, with a lawsuit risk of approximately 2% per account.

DIY Debt Settlement Myth #5: I’ll Be Protected Against Lawsuits If I Enroll With A Debt Settlement Company

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This is the fifth in a series of posts discussing the most common myths about do-it-yourself debt settlement. As consumers shop for a debt relief solution and talk with the sales reps at various debt settlement firms, one of the first questions they will usually ask is, “What about creditor lawsuits? Won’t they just sue me to recover what I owe?”

There’s no question that taking the path of private debt negotiation carries some risk of legal action. In general, the longer you take to settle your delinquent accounts, the greater the risk being sued meanwhile. (This is a key reason why we always encourage our clients to negotiate all their settlements as quickly as possible.)

However, the responses you get will vary depending on how ethical the company is in terms of key disclosures. Sales reps for debt settlement firms are always trying to find creative ways to deal with this key objection, so they can “close the sale.” Before the FTC stepped in and amended the Telemarketing Sales Rule to restrict debt settlement companies from misrepresenting their services, we used to hear a lot of outright falsehoods, such as, “They can’t sue you while you’re in our program,” or, “Don’t worry, we won’t let that happen to you.”

[NOTE: For the purpose of this article, I am ignoring the so-called “attorney model” debt settlement firms, where supposedly an attorney is assigned to monitor your file and help with any legal situations. I will discuss attorney-based companies separately in a later post in this series.]

Nowadays, after the rule change and a series of enforcement actions, we hear less of this blatant lying than before. However, sales reps working for traditional debt settlement companies still tend to downplay the risk of legal action. Further, many of the companies that generate “leads” for the debt settlement industry use mailers or online ads that give the impression that consumers are “applying” for enrollment in a formal program, either a government sponsored program or one the banks fully recognize.

Without actually saying so in plain English, these companies are trying to create the impression that a consumer who enrolls with their program will somehow be protected from aggressive collection practices. Yet time and time again, we hear consumer complaints along these lines: “I signed up with this company to settle my debts for me. One of my creditors sued and they did nothing about it. Now I have a judgment against me and had to file bankruptcy anyway, but the debt company refused to refund my money.”

There are two reasons why consumers frequently get sued by their creditors even when enrolled in a traditional debt settlement program. First, as I discussed in the previous post in this series, the banks do not actually recognize the need for third-party debt settlement. We have testimony to that effect by bank representatives during the FTC hearings on the industry. So there is no formal enrollment taking place, and therefore no procedure that will cause the bank to suspend its normal collection activity, which may include litigation.

Second, and perhaps more importantly, involvement with a debt settlement company can actually INCREASE the risk for legal action. I refer to this as the “footprint” problem of debt settlement. A negotiator cannot talk to your creditors on your behalf unless you first grant them a Power-of-Attorney. Yet once that Power-of-Attorney is received by the creditor, the account is flagged as a third-party settlement account, and the normal collection process is short-circuited. Rather than helping, the negotiator’s involvement actually hurts the consumer by accelerating the placement of their accounts to legal status, when otherwise it might have not happened (or taken much longer to develop).

Myth busted. As demonstrated by numerous complaints filed by consumers, as well as many enforcement actions by the FTC and Attorneys General for various states, enrollment in a debt settlement program does NOTHING to decrease the risk of litigation faced by consumers who are delinquent on their credit card debts. In fact, due to the “footprint” problem of debt settlement, the involvement of a debt settlement firm may actually INCREASE the risk of lawsuits and also accelerate the timeframe in which they occur.

DIY Debt Settlement Myth #4: Settlement Companies Get Better Deals Because They Have Relationships With Creditors

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This is the fourth in a series of posts discussing the most common myths about do-it-yourself debt settlement. The claim that debt settlement companies have relationships with the major creditors is a major part of the sales presentation for traditional settlement programs. I call this the “volume” objection, and of course, it’s total nonsense.

The pitch goes something like this: “We are a big company and every day we settle large blocks of debt. The creditors know us and work with us and we do bulk settlements with them, so we can get you a better result than you’ll be able to negotiate on your own.” The picture created in the client’s mind is that they are enrolling in a formal program – a program that is RECOGNIZED and PERMITTED by their creditors, similar to a non-profit credit counseling program (aka “debt management plans”).

Unfortunately, this sales claim is totally bogus! The major credit card banks lobbied heavily to get the entire debt settlement industry shut down, and the draconian ruling by the FTC in October 2010 has gone a long way to accomplishing that aim. During the hearings that led to the FTC ruling, we heard directly from the banking industry that they did not view the debt settlement industry favorably, and that they do not recognize the need for such firms. At best, the relationship is an adversarial one, and the banks still view any intervention by a for-profit service as being against their own interests. In the context of the major bank creditors, the notion of “bulk settlements” is just a fairy tale made up by the settlement company’s marketing department.

What about collection agencies or collection attorney firms? Here, there is some truth to the statement that a debt settlement company may have relationships with other third-party entities like agencies or attorneys. However, that does not necessarily result in a lower overall percentage on negotiated settlements. And even if there was a better discount available through such connections, any savings would be more than gobbled up by the fees involved. For example, let’s say the best you can do with an agency yourself is 40% of a $5,000 balance, or $2,000 net payout. The settlement company negotiates it down to 30% instead, or $1,500 payment to the creditor. The fee, however, is 25% of the $3,500 savings, or $875, so the total payout is $2,375. Better deal, worse result! You would still have been better off handling the matter yourself.

Myth busted. Even the largest debt settlement firms have zero influence over the settlement parameters of the major credit card banks, and “bulk settlements” are just so much marketing hype. Even if there were deeper discounts available through professional negotiation, any savings gain would be more than offset by fees. Consumers save more overall by excluding the fees and negotiating on their own.

DIY Debt Settlement Myth #3: Only A Skilled Negotiator Can Succeed Against Professional Debt Collectors

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This is the third in a series of posts discussing the most common myths about do-it-yourself debt settlement. All too often, I hear consumers say things like, “I’m not a good negotiator,” or “I’m afraid they will bully me.” Since dealing with collection scenarios is new territory for most people, it’s no surprise that people feel this way. This objection is about lack of SELF-CONFIDENCE. People turn to professional debt negotiators because they don’t believe they can get on the phone and haggle on their own. This is understandable, especially given all the negative publicity about the collection industry’s practices. The major media loves to bash the collection industry (it’s an easy target!), so we’ve all heard horror stories about abusive debt collectors.

However, the reality is that negotiating settlements is actually mostly a MECHANICAL process. Virtually all major creditors have pre-existing collection systems set up to work their delinquent accounts as they get close to charge-off, or to recover on accounts that are beyond charge-off. As the accounts wind toward the date on which the creditor will be forced to write off the account and declare a loss, the options employed by the creditor will get more creative – and this is where settlements come into play almost automatically.

Negotiating a good settlement on a credit card debt is more a matter of employing the right timing and knowing what to aim for – both of which a good coach can really help with – than anything to do with superior negotiation skills. Time and again, my clients have reported genuine surprise at how much easier the process was than expected. When you have a coaching blueprint to follow, it becomes a lot easier to calmly make your offer and see how the other side is countering. If you don’t like their offer, you end the call and move on.

People generally overestimate how much negotiating takes place, when what’s really going on is that the collection system has settlement built into it as an automatic part of the process. Rather than becoming a crackerjack negotiator, you need to learn how to present an offer, how to manage the calls without getting bombarded, and how to close out a deal when you’ve reached verbal agreement on a settlement figure. All of these things can easily be taught to the average consumer, and our results here at ZipDebt bear this out.

Myth busted. Obtaining settlements is a mechanical part of the collection process, already built into the system. All that’s needed is training on how that system works.

DIY Debt Settlement Myth #2: I Don’t Have Time to Handle the Project Myself

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This is the second in a series of posts discussing the most common myths about do-it-yourself debt settlement. One of the most frequent objections I’ve heard to the idea of handling your own negotiations is that the client is “too busy to handle all the phone calls” involved in obtaining settlements. “I really don’t have time to do this myself,” is a refrain that I’ve heard over and over again. Of course, the companies out there trying to sell people on using their traditional settlement program play up this concern and make it sound like an impossibly complicated project that demands an almost full-time effort. Nothing could be further from the truth!

There are at least three reasons why “I don’t have time” is not a valid objection to ZipDebt’s DIY-with-Coach method.

1. Whether or not you hire a debt company, you’re going to get collection calls, period. There is really nothing that a debt settlement company can do to get your phone to stop ringing, unless they send out a cease communication notice to your creditors. Yet the cease communication letter (or cease & desist notice) is a tactic that I stopped using more than 10 years ago. Why? Because it gets people sued sooner rather than later. If your debt company send out cease communication letters as a routine business practice, they are employing a method that has long since been obsolete and has become very dangerous. So unless you want to greatly increase your risk of litigation, you’re going to have to put up with some collection calls no matter what.

2. If you properly implement a call screening system the way I teach it in my training course, you’ll greatly reduce the number of calls you actually need to be involved with. The time commitment is very manageable if you have a system in place for dealing with the collection barrage. With my system, you make 1-2 callbacks per month per creditor while the accounts are aging to the point where settlements become feasible, and then a few extra calls at the end to finalize the agreement, obtain a proper settlement letter, and make payment. The time commitment involved is nowhere near as burdensome as most people think, provided you learn the right techniques for managing and controlling the process.

3. Calculate how much money you’ll save per hour of negotiation phone time, and you’ll realize it’s the best paycheck you’ll ever see in your entire life! Here’s an example: Let’s say you settle a $10,000 credit card debt for 30%, or $3,000. It requires a total of 15 phone calls spread over 6 months, with average duration of 20 minutes per call. That’s 300 minutes, or 5 hours total, to save $7,000. Where else are you going to make $1,400 per hour? 🙂

Myth busted. You can’t dodge the calls without making things worse, collection activity can be managed with a good call screening system, and ZipDebt’s DIY-with-Coach approach can yield savings of $500-$1,000 or more per HOUR of negotiation time.

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.