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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 #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.