ZipDebt Debt Relief

Fast Affordable Debt Relief

debt settlement

How to Settle Your American Express Credit Card Account

by 297 Comments

[vc_row][vc_column][vc_column_text][Note: This article originally appeared as a guest post on Steve Rhode’s blog at GetOutofDebt.org. Thanks to Steve for permission to repost here on The ZipDebt Blog.]

If you’re facing a legitimate financial hardship and can’t make the minimum payments on your American Express credit card one potential solution is to negotiate a lump-sum settlement for less the balance owed. If you’re unfamiliar with debt settlement, you’re probably wondering how someone who can’t make their monthly payments would have the funds needed for a settlement at, say, 50% of the total balance. But there is a huge difference between income and assets, and many consumers who can’t sustain regular monthly payments due to lack of income or other financial hardship are able to use some of their dwindling savings for the purpose of settlements. Other sources for funding settlements might include the sale of household items, collections, cash value life insurance policies, borrowing from family, or sale of property. These are one-time funding sources, in other words. Once the money received from a one-time source has been expended, there is no more to replace it. But such funds can be put to excellent use in retiring a major credit card debt, when otherwise the customer would just be facing an unsustainable situation (which in turn often leads to bankruptcy).

When it comes to settlement with American Express, there are some specific facts about this creditor that you should be aware of. Prior to the financial crisis of 2008, American Express was not a bank like most other major credit card issuers (such as Bank of America, JP Morgan Chase, Citibank, etc.). The company converted to a bank holding company structure in November 2008 in order to become eligible for Treasury Department assistance under the infamous “TARP” program. The reason this matters is because there are some important differences that need to be taken into account in terms of the “collection culture” at different types of creditors. For example, most of the major credit card banks eventually SELL their delinquent accounts to various debt purchasing companies, so when you are trying to settle an old charge-off account it’s very possible that you’ll be dealing with a debt purchaser or their collection agency. Yet it’s highly unlikely you will encounter this situation with respect to any type of American Express account. This creditor rarely sells its accounts, no matter how old. It’s simply a part of the collection culture that developed at American Express, which positioned itself over the years as being “different” than Visa or MasterCard.

Why is this relevant if you’re trying to reach a settlement with Amex? Many websites offering advice on settlement of credit card accounts recommend sending “debt validation” notices to collection agencies or creditors, in theory “putting them on notice” that you are aware of your consumer rights and demanding copies of their backup documentation. There are definitely situations where a debt validation letter is appropriate and effective. However, when you are trying to settle an American Express account, it would be a major tactical mistake. The reason is because they have the documentation. It’s trivially easy for an original creditor to produce a stack of monthly statements two inches thick and mail it to you. Voila. Debt validated, and account moved to an in-state legal firm for your troubles!

The first rule in settlement with American Express is therefore to avoid any sort of tactical “games” like debt validation, which are generally unnecessary anyway. I always recommend proactive telephone contact with creditors, and American Express is certainly no exception. Get on the phone a couple of times a month and let them know about your situation. Be aware that you’ll hear various kinds of options presented to you depending on how far behind you are on payments. For example, if you are two payments behind, the representative will generally not discuss settlement yet and will only speak in terms of different payment options. Listen carefully to these proposals and note them down. Sometimes these alternate programs can include low interest rates and lower monthly payments, and for some consumers this level of relief alone may provide sufficient breathing room to get a handle on their financial situation.

If you’re more than three payments late, the odds are good that you’ll be hearing from an outside collection agency. It’s quite common for American Express to assign their accounts to third-party collection agencies well before the point of charge-off at 180 days late, often as early as 90 days late. Don’t panic if this happens! Understand that the majority of settlements with American Express are negotiated through these third-party collection agencies.

Achieving a settlement with any creditor is a matter of balancing RISK versus SAVINGS. You’re in a financial crisis and want to obtain as deep a discount off your balance as possible, but you also have to be mindful of the legal risk that mounts whenever you are behind on payments with a creditor. One important tip for determining the risk factor is to assess WHERE the assigned collection agency is located. If they are not a law firm and they are in some other state than yours, then the situation is low risk compared to assignment to a law firm in your state. American Express is not a “bluff” creditor, so we do take any legal threats from them seriously once a file has escalated to placement with a collection attorney firm (licensed to operate in the client’s home state). In such situations, the risk is greater, so we accept a higher figure than we might otherwise. Where the risk is lower, we can hold out and try to do better on the settlement percentage.

Let’s say you are talking with a third-party agency in a different state and they have agreed to a 40% settlement. You are happy with the result and you can fund the settlement ok. The one unbreakable rule in debt settlement is to GET IT IN WRITING FIRST, before you pay! You must have a letter in-hand before you make payment on your settlement. There are NO exceptions to this rule. A faxed copy is fine, and in fact most settlement letters are just fax copies of the agreement. This isn’t a matter of “trust,” or “distrust.” It’s just simple common sense that any agreement modifying your contract with American Express (or any other creditor) must be in writing. If you have a debt collector balking at putting the settlement in writing, then just put your foot down and insist that you will only proceed on the basis of a written agreement letter. It doesn’t have to be long! It just has to cover the essentials – the account number, amount of settlement to be paid, any payment installments listed clearly with due-dates, and the transaction has to be defined or referred to as a “settlement,” or “settlement-in-full.” Simple enough!

With your letter in hand, then you can make your payment. Cashier’s check by Federal Express is one method, but you want to be sure that you’ve coordinated payment method with the agency. Most of them prefer check-by-phone or electronic check (same thing). This is also called an ACH transaction, and it means you provide them the bank routing number and account number off your checking account. If you have it in writing first, it’s ok to do this. If you are negotiating settlements with multiple creditors, it’s better to set up a special checking account for this purpose. That way you can react quickly in case anything goes amiss.

One more important point about settlements with American Express. Many consumers have both personal and corporate cards issued by this creditor. It’s common to carry a personal account and then receive one issued by your employer, to cover work-related travel expenses, per diem costs, and so on. The corporate cards are generally issued to the corporation itself, even though your name appears on the card, so generally it is not advisable to attempt settlement on this type of account, as it could have a direct effect on your employment status.

Take the high road and negotiate in good faith with your creditors. Don’t play games or make up stories about your situation. If you are in a financial crisis, that is enough, and you just need to be patient and persistent. Start out with an offer around 20-25% of what you owe, but state this in terms of a dollar amount. You are aiming for a financial outcome that you can live with, not a world-record low percentage. As the negotiation proceeds, resist your initial urge to jump your offer right away, and give it some time to see how things go first. You can always increase later. The first offer you receive from an agency will rarely be the best offer available, no matter how convincing the explanation that this is “the best we can do.”

Over time, and with a series of negotiation calls, it’s possible to reach a settlement agreement on your American Express card that you can handle. Don’t be greedy. Once you reach your goal, accept the settlement and take the deal off the table. If you’re like most clients, you’ll feel a tremendous sense of empowerment at achieving a successful settlement. It can be a huge game changer financially, as well emotionally.[/vc_column_text][space height=”4″][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]UPDATE: August 8, 2016

In the five years since I originally published this article, I’ve received numerous questions and inquiries about negotiating settlements with American Express, and talked to hundreds of consumers who were finding it difficult to reach an agreement even with all the advice I had presented in the article.

A big part of the problem in dealing with American Express is due to two key factors.

(1) They move the file quickly to outside collection agencies compared to other major credit card issuers, and many of those assignments are to in-state law firms.

(2) Their collection law firms often file lawsuits as quickly as 4 months late, so many (if not most) American Express settlement negotiations are taking place with active litigation in play.

While I’ve successfully coached many people to reach settlements with American Express, I am no longer actively recommending the Do-It-Yourself method for dealing with this very difficult creditor. Settlement with Amex requires steel nerves and precision timing, and is best handled via a customized full service approach.

If you are facing a default situation with American Express and would like to have some professional assistance in resolving the matter, please read my 5-part series on Tailored Debt Settlement.[/vc_column_text][space height=”4″][/vc_column][/vc_row]

$8.5 Million in Credit Card Debt Settlements by ZipDebt Clients in 2011!

by Leave a Comment

In 2011, clients of my ZipDebt program reported settlements totaling more than $8.5 million of debt, primarily credit card debt balances. Here are the actual statistics:

ZipDebt Settlement Results for 2011

Number of settlements reported __568
Debt balances settled __$8,557,873
Amount paid for settlements __$2,752,917
Client savings __$5,804,956
Average account balance __$15,067
Average settlement result __32.2% (balance at time of settlement)

To put these figures in perspective, first you have to remember that ZipDebt is a “boutique” rather than a large firm. During 2011, with just one other person helping me with coaching, our clients saved nearly $6 million off their balances. Every single one of these settlements was SELF-NEGOTIATED. So much for the oft-repeated claim (by debt settlement sales reps) that consumers can’t negotiate their own settlements!

Here are some important additional data points:

  • Out of the 568 reported settlements for 2011, 445 of them were negotiated BEFORE CHARGE-OFF.
  • Two out of three settlements were negotiated directly with the ORIGINAL CREDITOR, without the involvement of any external collection agency or law firm.
  • Debt purchasers were involved in only 12 of the 568 settlements, or roughly 2% of the total. (Contrary to popular misconception, it’s not always easy to settle with purchasers, and this end of the industry is where many lawsuits take place.)
  • Clients reported a total of 11 creditor lawsuits. This translates to a risk factor of 1.9% per account.

Let’s put it all together. What does the above data tell us?

  1. ZipDebt clients work quickly, settling about four out of five accounts before the charge-off deadline, and nearly all accounts within a 12-month timeframe.
  1. ZipDebt clients negotiate most of their settlements (66%) with the original creditor, meaning fewer situations where it was necessary to negotiate with a collection agency or law firm.
  1. The average settlement result of 32.2% blows the doors off the results published by ANY traditional debt settlement firm (assuming that you can FIND any published results!).
  1. The legal risk for a properly coached DIY debt settlement client is FAR BELOW that of clients enrolled in traditional 36-month debt settlement programs.
  1. All of the above was accomplished with a fee structure that represents a small fraction of what most companies charge.

Do you want to settle your debts quickly, pay less money out of pocket, eliminate steep “negotiation fees,” and reduce your legal risk to the maximum extent possible? If yes, then don’t hire a third-party debt settlement company! Get the education, training, and coaching support that you need to be successful at this process on your own.

If you think debt settlement might be right for your situation but would like more information after reading our free materials, please feel free to request a 20-minute phone consultation.

ZipDebt vs. Traditional Debt Settlement – How Do We Stack Up Against the Competition?

by 4 Comments

In my blog post on “The Future of Debt Settlement,” published a little over a year ago, I assessed the state of the debt settlement industry in the wake of the FTC rule-change that banned the advance-fee model for third-party debt settlement. To summarize, in that earlier post I described the in-progress breakup of the industry into three different groups: (1) companies closing down or suspending all marketing operations, (2) companies seeking loopholes that still permit advance fees to be charged, and (3) those firms attempting to comply in good faith with the FTC rule-change.

It’s difficult to put statistics to the number of closures, since the debt settlement industry has always been murky in terms of publicly available information. But one metric is membership in the industry’s trade associations, and by that standard a large majority of such companies have gone out of business. USOBA (U.S. Organizations for Bankruptcy Alternatives) has stated that its membership roster has declined from around 200 to only 30 companies. And the AFCC (American Fair Credit Council) is down to about 35 firms from an initial 220 members. These figures represent a membership decline of approximately 85%. However, since both of these organizations published new policies requiring their members to be fully compliant with the FTC ruling, it’s possible that many of these former member-companies are still in existence and have merely dropped their trade association memberships as they continue seeking “creative” (i.e., non-compliant) revenue sources.

What about those “loophole diehards,” as I call companies still trying to charge hefty upfront fees? There are a number of firms still attempting to exploit the so-called “attorney model” for debt settlement, on the theory that attorneys are exempt from the FTC ruling. At least one of these firms has been on the receiving end of multiple lawsuits filed by Attorneys General from various states, and while they are still a big problem for unwary consumers, it is only a matter of time before we see such companies exit the marketplace under regulatory pressure. That will leave two essential choices for the consumer seeking relief via debt settlement: the “FTC-Compliant” firm and the do-it-yourself approach.

In a March 2011 blog post titled, “Consumers Should Still Be Wary of the New ‘FTC Compliant’ Debt Settlement Companies,” I explained why people should still watch their backs when hiring a firm that claims to be FTC-compliant. Please refer to the March post for full details, but briefly, there are four key reasons why “buyer beware” still applies even to the companies not charging upfront fees:

1. Program durations of 36-48 months are still being routinely quoted by these companies. Take that long to settle your debts, and the odds are heavily in favor that you WILL be sued by one or more of your creditors. (At ZipDebt, we coach our clients to complete their settlements in a 6-12 month timeframe, which greatly lowers the legal risk associated with this approach.)

2. The major credit card banks did not suddenly turn around and start working with these firms after October 2010. So this means consumers need to wait past charge-off (after 6 months of non-payment) for their “professional negotiator” to even begin the process of settling their accounts. (At ZipDebt, approximately 90% of our clients’ settlements are negotiated before charge-off.)

3. Hire a third-party debt settlement company, and you can expect a much higher risk of legal action, not a lower risk. Consumers often get the false impression that they are “protected” by enrolling in a debt settlement program with an established company. Not true! In fact, just the opposite is true! If you wanted to get sued sooner rather than later, just hire a third-party debt company who sends out a Power-of-Attorney to your creditors. (At ZipDebt, we do not use POAs. Clients negotiate on their own with our guidance and coaching. Our clients have a fraction of the legal risk of clients enrolled with third-party firms.)

4. How do you know your debt settlement company will still exist a few months from now? With companies closing left and right, there have been numerous examples of clients being left in the lurch with no idea what progress (if any) has been made on their debt accounts. The financial pressures that companies are experiencing are enormous, as they attempt to convert from charging 15% front-loaded, to a percentage-of-savings fee on the back end. Many (if not most) firms attempting this conversion to FTC-compliance won’t be around for another year. They have made it to this point by using the revenue from “grandfathered” clients enrolled prior to 10/27/2010, where the fees are still coming in advance. Those revenue streams are drying up now, and 2012 will be a very tough year for most of these companies. Many will not survive another year of these market conditions. Why hire a company if you aren’t sure they will be there when you need them most?

ZipDebt pioneered the approach of do-it-yourself debt settlement combined with professional training (via audio CDs) and live coaching (delivered via email and telephone). Our results are published here and here. (Note: In 2012 we will publish updated statistics.) We challenge readers to find a better published track record anywhere in the debt settlement industry. We believe that ZipDebt clients settle faster for less total money out-of-pocket vs. ANY competing company or approach other than Chapter 7 bankruptcy. Of course, good luck to anyone trying to find the published track records of other companies in this industry to compare us against. Even today, the vast majority of companies do not publish their results at all! And the ones that do only disclose what they are required to, instead of a more detailed analysis of what is actually happening with their clients. When you examine the results of those few firms that actually do provide this type of data, it becomes immediately clear that traditional debt settlement programs result in higher legal risk and higher total cost to the client than my ZipDebt approach. (Note to skeptics: Please feel free to provide published data to the contrary, but I will not be holding my breath waiting for you!)

As with any business model, when you are successful, you see a steady stream of others trying to ride on your coattails and exploit your hard work for their own greedy ends. There’s an old saying: “Imitation is the sincerest form of flattery.” But whoever said that was not the owner of a business that has been ripped off countless times by copycats and quick-buck artists. For example, I’ve had people take my 32-page report and just sign their name to it. Others have settled a few debts based on my advice, then try to set themselves up as “experts” in debt negotiation. Some have written books or e-books based on my material, without any type of credit or source citation. Still others have set up DIY debt settlement websites based on “coaching,” with training materials that sound all too familiar. And so it goes.

Again, BUYER BEWARE! There are at least half-a-dozen active websites attempting to copy my business model. How do you evaluate the difference between ZipDebt and its competitors and make the right choice?

How to Compare ZipDebt to Other DIY Programs

• BBB Ratings – A+ for zipdebt.com as an accredited business, vs. C, D, or F ratings for competing firms (or NO ratings at all, meaning it’s a very new company).

• Moneyback Guarantee – ZipDebt offers all programs with a 365-day moneyback guarantee, compared to 30 days for most competing firms (not enough time to properly assess the information).

• Time in Business – I have been assisting consumers with debt settlement since 1997, and ZipDebt has been online since 2004, far longer than any of the copycats.

• Who Are They? – I operate with full disclosure and provide detailed information about who I am and my background in this industry. Compare this to the faceless “corporate” websites offering DIY programs where you have no idea who is behind the product.

• Live Coaching – We deliver coaching via email and telephone, tailored to the client’s specific list of creditors and unique financial circumstances, not just generic advice provided via online forums or blogs.

• Published Track Record – We publish our results so clients have proper insight into what can actually be achieved with this approach. Good luck finding published results from ANY competing DIY solution.

• We Do Not Refer to Third-Party Companies – We do not receive any type of compensation for “up-selling” from DIY to the far more costly third-party programs the way some other so-called DIY sites do. We only do DIY-with-coaching, and we never refer prospective clients to ANY traditional third-party settlement firms.

We’re confident that once you’ve done your research, you’ll agree that ZipDebt is the ONLY choice for do-it-yourself debt settlement, and in fact, we are the most prudent and rational choice for debt settlement in general. To learn more about our approach, please read our free 32-page download, “How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy.” You’re also welcome to request a free 20-minute phone consultation. We’ll give you an unbiased recommendation on whether or not this approach is suitable for your financial situation.

Debt Settlement Letters – Myths & Misunderstandings Galore!

by 286 Comments

In my 14 years as a debt settlement professional, I’ve reviewed thousands upon thousands of debt settlement letters. Last year alone we had about 1,200 of them to review and approve on behalf of our clients. If there is one subject I know well, it’s how to document a settlement! There is nothing especially difficult about it, but I continue to be astonished at the amazing amount of bad information floating around on the Internet about this subject. In this blog post, I will set the record straight. If you want advice on how to protect yourself during a settlement transaction, you’ve come to the right place.

A word to the wise: You can either listen to someone like me, who reviews settlements on a DAILY basis, or make your decision based on some discussion forum where amateurs rule the day and the occasional “expert” weighs in with his or her opinion. I have seen cases where the exact opposite of the correct advice was given by so-called experts. So ignore my advice at your own risk!

1. NO LETTER, NO DEAL, NO EXCEPTIONS – EVER!

I have only one unbreakable rule for this game we call debt settlement. No letter, no deal, no exceptions, ever! In the course of negotiating settlements, you will sometimes run into lazy or misinformed debt collectors who refuse to grant a proper letter. They may use a variety of excuses, such as “There isn’t time and we need to get this handled today,” or my personal favorite: “This is a recorded line, sir. It’s all on tape, so you won’t need a letter from us.” This, quite frankly, is nonsense. If there were a problem later, how would you ever obtain a copy of that recording? You’d have to file a lawsuit against your creditor and obtain it through the discovery process. Good luck with that approach! It can be a real heartbreaker to think you have a good settlement, only to have the creditor take your lump-sum and treat it as a regular payment on the full balance and later deny ever having approved a settlement. Without a proper agreement letter, that is precisely the risk you take. The good news, however, is that getting a settlement letter is easy enough to accomplish.

The most important point to bear in mind here is that a settlement is a CHANGE IN CONTRACT between you and your creditor. The creditor’s own agreement language (i.e., the fine print on your credit card application) will always insist that any change to the agreement must be approved by the creditor and put in WRITING. So when necessary, you can apply some verbal ju-jitsu and use the creditor’s own policy to get what you need. When verbal agreement has been reached but the collector is balking at sending a letter, take this approach:

YOU: “If I accept this settlement it will modify the terms of my contractual agreement with XYZ Bank, correct?”

REP: “Yes.”

YOU: “Well, doesn’t the fine print in your original agreement state that any changes must be made in writing?”

REP: “Um, uh, let me get my supervisor for you.”

Escalate politely if necessary, but stick to your guns all the way up the food chain. If you don’t have a proper settlement letter, then it’s your word against theirs and you should not fund the settlement, period. By following this simple rule, you will save yourself a lot of grief.

2. FAX COPIES ARE FINE

The majority of settlement letters are forwarded via fax, and this is totally fine for the purpose of documenting the transaction. The creditor may or may not follow with a hard copy by post, but the fax copies have stood the test of time and consumers have been able to safely rely on this method for years. I cannot think of a single instance where a settlement was later disputed by a creditor when the only issue was documentation via facsimile rather than hard copy.

3. YOU WANT IT ON THEIR LETTERHEAD, NOT YOURS!

In the past decade-plus, I have overseen more than 10,000 settlements. In ALL cases without exception the agreement was documented on the LETTERHEAD of the CREDITOR, collection agency, or collection attorney representing said creditor, and NEVER on the consumer’s own letterhead. This is the correct method for the consumer handling their own negotiations, and it’s also the method employed by virtually all professional negotiation firms. Only inexperienced negotiators use the method of trying to get creditors to sign self-generated settlement letters.

There are books, e-books, websites, and a number of online “coaching” programs (aka inexperienced people trying unsuccessfully to copy what I do at ZipDebt) that claim you should mail a stream of offer letters to your creditors. This is a BAD IDEA! I don’t care if there are a few examples here and there where a creditor did agree to sign an offer letter as proposed by the client. The problem is that 99% of the time this method will FAIL. The reason is that all the major credit card banks have existing template language for documenting their settlements. The language has been pre-approved by the creditor’s legal staff. So you’re not going to get a manager at one of these banks to sign your stupid settlement letter and agree to your terms! And by insisting on doing it this way, you’ll be potentially costing yourself good settlements.

The correct technique is to verbally negotiate your settlement by telephone, and then to request a proper settlement letter be faxed to you before you present payment.

Aside from the reality that bank executives won’t sign off on your settlement letter, another reason I am opposed to working it the other way is the FOOTPRINT problem associated with any letter writing campaign. If you are using some type of “settlement system” that you purchased, think about how creditors will react when they start receiving the exact same letter over and over again from lots of different consumers. Their computer systems will catch on to this quickly, and before long, these letters will be classified as THIRD-PARTY generated. That is the kiss of death for a good settlement. Once the bank realizes you are using a system – a system that they are very much NOT in favor of! – then you can expect your account to be flagged for a different track of collections than the usual one. I’ve even seen this approach trigger early lawsuits or arbitration filings by the creditor.

Let me put it this way: Sending a series of pre-formatted settlement offer letters to your creditors is like repeatedly whacking a sleeping rhinoceros on the top of the head. Sooner or later the beast is going to wake up and have you for breakfast!

4. ANATOMY of a GOOD DEBT SETTLEMENT LETTER

Here is a simple checklist on what a proper debt settlement letter must include:

• The letter must be on the bank or agency’s letterhead
• The letter must be dated
• Your account number should be clearly identified (it’s fine if they only show the last 4 digits)
• The transaction must be described as a “settlement” or “settlement in full”
• Amount of settlement payment is stated correctly
• Payment due date(s) are stated clearly and correctly
• Individual payments sum correctly to the total amount to be paid on the settlement

Notice what this list does NOT include. It does not include a requirement for a physical signature. Surprised? Don’t be. About 99% of settlement letters don’t get physically signed. Trust me on this. It’s ok. Just like I have never seen a single settlement go sour because the creditor sent the letter by fax, I’ve also never seen a settlement go bad because the letter lacked a physical signature.

Guess what else is missing from this list? You’ll notice that there is nothing about how the settlement gets reported to your credit report. Why? Because it doesn’t matter. You can argue until you are blue in the face, and you’ll never get a creditor to alter the language by which it reports settlements, nor should you care in the first place. All settlements get reported as “settled for less than full balance,” or words to that effect, and they carry the same credit score code no matter what words are used. If it doesn’t get reported correctly, you can dispute the entry later on with the three major credit bureaus. But you can forget trying to have your creditor forgive 50% or more of your debt and also help you clean up your credit at the same time! It simply doesn’t work that way, and many an amateur has blown a perfectly good settlement over this point. Negotiate your settlements, THEN worry about your credit!

If you need professional advice on documenting your settlements, steer clear of the myths and misunderstandings you’ll find online, and give us a call at 866-515-2360. What we do is not based on theory, but rather on what has WORKED and has proven EFFECTIVE for thousands of clients in resolving problem debt.

NEW! DOCUMENT REVIEW SERVICE
Update: October 31, 2013


ZipDebt now offers document review for settlement letters and collection letters or notices. Have your document reviewed by Charles Phelan for a one-time low fee of $100. One business-day turnaround. Click here for more information or to order document review.

$16 Million in Credit Card Debt Settlements by ZipDebt Clients in 2010!

by Leave a Comment

Who says you can’t settle debts on your own? In 2010, clients of my ZipDebt program reported settlements totaling more than $16.2 million of debt, primarily credit card debt balances. In my blog post of July 2009, “Debt Settlement Done Right,” I outlined my success tracking statistics and included a progress report on settlement activity through mid-year. At the time, we reported 737 settled accounts representing more than $10 million of debt. By year end, the figures had increased to more than $16 million settled and more than $10 million in SAVINGS. Here are the updated statistics:

ZipDebt Settlement Results for 2010

Number of settlements reported___ 1,193
Debt balances settled___ $16,251,722
Amount paid for settlements___ $ 5,376,767
Client savings___ $10,874,955
Average account balance___ $13,623
Average settlement result___ 33.1%

I will repeat a point I made in the July post. When you research debt settlement, you’ll come across numerous press releases where company executives boast of their firms having settled $100 million of debt over a period of several years. Remember, we’re talking about larger companies with 25-50 employees (much larger in some cases). Well, so what? During 2010, with just one other person helping me with coaching, our clients cracked $10 million in savings. Why do our clients do so well? Clients can settle more debt faster when they are not held back by huge fees.

As became clear during the recent FTC investigation of the debt settlement industry, the industry average for settlements is right around 50%. Add the usual 15% in fees (whether paid in advance or as the accounts are settled), and the average client is looking at around 65% total repayment.

Let’s do some math here. Say you owe $50,000 in debt. You hire a debt settlement company. Assuming they settle everything with no problems (which is a very large assumption!), you’re looking at a payout at 50%, or $25,000, plus fees of $7,500, for a total of $32,500 out-of-pocket. (To keep the math simple, I’m ignoring any balance inflation during the process.) Let’s round up from 33.1% and assume you do 35% using the ZipDebt Program. Your payout would then be $17,500, plus $777 for the program fee, or $18,277 total. That’s a difference of more than $14,000! The average ZipDebt client does 28% better!

Simply put: For most clients, a margin of 28% on large debt balances would spell the difference between SUCCESS and FAILURE at the debt settlement strategy. This is precisely why ZipDebt has the best track record in the industry.

If you owe $100,000 or more, the difference becomes even more pronounced — $15,000 in fees, $65,000 total payout versus $777 in fees and $35,000 in settlements, for a difference of more than $29,000. That’s a lot of dollars back in your pocket.

The more you owe, the more you are penalized by traditional debt settlement company fee structures. Why should you pay more because you owe more? It takes no more work to settle an account with $20,000 balance than it does a $10,000 account, yet the fee will be DOUBLE. Do the work yourself (with our guidance), and skip the huge fees. You’ll be out of debt much FASTER as a result.

High-balance debtors owing $100,000 or more should read my new FREE REPORT DOWNLOAD (PDF file): “$100,000 in Credit Card Debt: Financial Survival Tactics for High-Balance Debtors & Small Business Owners.” (Heck, even if you owe a lot less, read it anyway – most of the information will still apply to you.)

IMPORTANT! Don’t be fooled by all the new marketing for “FTC compliant” debt settlement companies. It used to be that they charged a lot of money up front to get you quickly sued by one or more of your creditors. (All the major banks HATE debt settlement companies, and that has NOT changed in 2011!) Now, they will get you sued without charging you in advance for it. It is much SAFER to handle the project on your own with some expert coaching.

If you think debt settlement might be right for your situation but would like more information after reading our free materials, please feel free to request a 20-minute phone consultation.

Make 2011 the year you tackle your debt problem. A lot of others have paved the way in front of you, and the trail is clearly marked. Now it’s YOUR turn!

Automated Debt Settlement Systems – More Trouble Ahead for Unwary Consumers

by Leave a Comment

In my October column, I wrote about the future of the debt settlement industry in the wake of the FTC ban on advance fees. As I noted, the companies attempting to comply with the FTC ruling concern me more than the “loophole diehards,” who I believe will go out of business or be shut down anyway. Many in the “compliance” camp are already promoting untested business models as though they have been operating this way all along.

Among the group of companies that attempt to comply with the FTC rules will be some firms that take a slightly different approach. Some will attempt to *automate* their systems as much as possible. If they are to have any chance at all of making the percentage-of-savings model work on the long run, they will be forced to streamline their operations to keep overhead to an absolute minimum. Even if they sell “education packages” as a fig-leaf to gain some front-end revenue (as many firms are also proposing), it still won’t stem the tide of red ink, especially if they continue to run operations based on overhead figures from the boom years.

So … how do you go about automating a debt settlement operation? For starters, you make it less of a third-party approach and more of a do-it-yourself approach (sound familiar?). You accomplish this by laying off human beings and replacing them with websites and software, perhaps supplemented with online forums and chat groups. We’re already seeing examples of this, so I need to explain carefully why these new automated debt settlement programs are a potential train wreck for consumers lured by them.

When I refer to “automated debt settlement programs,” I mean programs that are based on *any* automated process (software based or not) that is designed to lead the consumer down the path of settling their debts, and with *live support* reduced to a bare minimum. The consumer signs up with the “settlement company” (which is now little more than a website), and registers all their debt information online. Part of the marketing pitch is that “all the forms and letters are included.” Consumers are given the illusion of a “system” that works via the process of automatically generated letters to be mailed to the creditors. The system may be set up strictly as a DIY model, where there is virtually no interaction with the company or its representatives and everything is done online via the website and email. Or the true purpose of the program may be to later “up sell” the consumer to a full service third-party program based on the percentage of savings model (after the consumer runs into trouble using the methods they were taught). Either way, it’s important to provide the illusion of a “system” that gives the customer “something to do” while they are trying to save up money for settlements. And this is usually set up as a series of automated letters that go out to the creditors on a regular basis. What type of letters are we talking about here? There are three main types — hardship explanation letters, settlement offers, and cease communication notices. All three of them are a BAD IDEA! Once in a while we may use a hardship letter or a settlement offer, but only under special circumstances, and we NEVER use cease communication notices. (Such letters are the single fastest method of prompting a lawsuit!)

Let me be 100% clear on this. The letter writing approach DOES NOT WORK. The banks don’t settle based on a back-and-forth flow of letters. If you want the best possible settlements, you first have to understand exactly how the mechanical collection system works at the major banks. (That’s where my program comes in.) Then you have to get on the phone and do some haggling! My method is based on negotiating settlements via live telephone calls to your creditors, not via letters by mail. In fact, my materials contain very few template letters. We hardly ever use letters anyway, except in specific technical situations. Instead, we negotiate by telephone, get our agreement worked out verbally, and then ask the creditor to write up the settlement on *their letterhead*. We do not do it the other way around, as per some of these unproven automated systems.

Why am I so down on having clients write letters to their creditors? With the collection calls being such a hassle, isn’t it easier to just write letters? I base my recommendation firmly on my personal experience in coaching thousands of consumers to settle their own debts. I tested a variation on the letter approach back in 2004-2005. When I launched the first version of my seminar, I included a hardship explanation letter for clients and advised them to send one monthly to keep in communication with their creditors. What I learned was that clients who relied on the letters did not get the desired results. Better settlements were almost always achieved through telephone haggling.

Worse, I discovered that the template letters were creating a recognizable FOOTPRINT. These letters all have basically the same language, so the banks caught on quickly. I promptly suspended use of such letters when it became clear that clients risked having their account flagged for early litigation by using this technique. That was a long time ago, yet numerous debt companies still use such obsolete tactics. I predict that we will be treated in 2011 to a whole bevy of new “automated debt settlement” programs that use this dangerous approach. But the bottom line is that there will be no feasible means of getting around the “footprint” problem caused when the same letter gets sent over and over again to the banks. Sooner rather than later, consumers enrolled in such programs will start seeing early litigation from the major credit card banks. If you intend to pursue debt settlement, do it right and avoid such pitfalls. Get in touch with us for a free 20-minute consultation and we’ll help you decide whether or not this is the right strategy for you.