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ZipDebt Clients Enjoy Great Results! Success Tracking Update, 2006 through 2012

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In July 2010, I published “Debt Settlement Done Right,” which included ZipDebt’s success tracking statistics for the period 2006-2009. As far as I know, I was one of the first in this industry to publish actual data on my results. Today, it’s still quite rare to see a debt settlement firm publish transparent information about actual performance results vs. the claims made in their marketing materials and sales pitches. There is a reason for this. Their data would show they do a poor job, get their clients sued on a regular basis, and fail to settle most of the accounts for most of their clients.

This is the latest update to my published success tracking statistics, and the data include the pool of clients who purchased one of my programs from 2006 through 2012. The updated stats demonstrate a track record I am very proud of. I’ve achieved excellent results in coaching consumers how to settle their debts quickly and safely on their own, with no need for professional negotiators or the sky-high fees they charge.

Please note that these figures pertain to clients who settled unsecured debts (primarily credit card debt). I’m not including data for clients who required assistance with settlement of second mortgages or HELOCs, a phenomenon that is unique to the past few years of the financial crisis. The process of settlement is different for mortgages, so it would not be appropriate to mix the data together. This will be especially important in the reporting of the amount of debt settled by clients, and the overall percentage achieved, since mortgage balances are usually much larger and the settlement percentages lower than for credit card debt. But it’s also important to recognize that the timeline for mortgage settlements is not the same as for credit card debts or other unsecured accounts. In general, mortgages require a longer timeframe before settlement can be reached.

Here is the hard data on ZipDebt Success Rates for clients who did DIY debt settlement on credit cards and other unsecured accounts. For the exact methodology employed, please see the original July 2010 post.

ZipDebt SUCCESS RATES (Cumulative) 2006-2012

1. Total Number of Clients @ 2,232
2. Number of Refunds @ 62
3. % Refunds/Total @ 2.8%
4. Coaching Not Included (Basic) @ 306
5. Insufficient Contact to Determine Results @ 722
6. In Progress @ 32
7. Pool of Coached Clients @ 1,092

8. RESULT A_ COMPLETED @ 501
9. RESULT B_ 80% Finished @ 294
10. RESULT C_ 50% Finished @ 82
11. RESULT D_At least 1+ Settlements @ 148
12. RESULT E_Filed Bankruptcy @ 67

13. BASE SUCCESS RATE (= RESULT A + B) @ 73%
14. 50%+ SUCCESS RATE (=A+B+C) @ 80%
15. SUBSCRIPTION SUCCESS RATE (A+B+C+D) @ 94%

BASE SUCCESS RATE – This is the most conservative definition of “SUCCESS” relative to my program. The group of “Completed” plus “80% Finished” clients are all success stories. These are people who made the program work and achieved the desired outcome. They settled all their debts, or had settled 80% or more of the starting balances by the time their coaching subscription ended. I am proud to announce that based on this simple criteria of “getting the job done right,” ZipDebt has a base success rate of 73%.

This is an inversion of the normal success rate for a traditional debt settlement company. Most of them have a FAILURE rate higher than 73%! It is also common knowledge that Chapter 13 and credit counseling programs have a high failure rate as well. I am quite proud of the excellent results achieved by ZipDebt clients. This 73% figure for my base success rate represents HUNDREDS of success stories – these are ordinary people who cleared out their credit card debts via self-negotiated settlements.

50%+ SUCCESS RATE—It’s important to remember that this is a do-it-yourself (with coaching) program. Clients often learn enough in their first 6-12 months with me to keep going on their own after their coaching subscription has expired. Some people choose to renew to extend their coaching service, while others really take the DIY-spirit to heart and finish out on their own. Including clients who were approximately half finished with their settlements upon expiration of the coaching subscription, the success rate climbs to 80%.

SUBSCRIPTION SUCCESS RATE—Considering that 94% of clients reported at least one successful settlement during their coaching subscription period, virtually every one of these customers received full value in return for the cost of their subscription fee, and most would say their savings on the first settlement alone paid for the program cost many times over.

BOTTOM LINE: My data clearly shows that consumers are capable of negotiating settlements on their own and achieving BETTER results than those obtained by third-party debt settlement firms.

To consumers considering debt settlement: It’s not for everyone. It’s imperative that you be a good fit for this approach in terms of your financial situation, and that includes having access to sufficient resources to negotiate your settlements quickly. ZipDebt clients are so successful because they move FAST – the majority of our settlements are negotiated before charge-off, or shortly thereafter. To learn more about this very successful approach to debt settlement, please read my Free 32-page report, How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy.

Why Consumers Should Hire A Debt Coach Before Negotiating With Collection Agencies

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I’ve been involved with debt settlement since 1997, far longer than most people working in this industry. Yet I still have to shake my head in amazement at some of the idiotic stuff debt collectors say.

Now, just to be 100% clear, I have nothing against creditors hiring agencies to collect on their delinquent accounts, and I view the collection industry as an essential part of our economy. The business of granting credit always entails some risk people won’t repay, which creates an opportunity for an industry that helps lenders enforce their contractual agreements. I’m also totally willing to acknowledge that many, if not most, debt collectors do a good job and play by the rules. Where I draw the line is with collectors who flat-out lie to people, break the rules, or make malicious statements intended to bully consumers who are suffering from legitimate financial hardships.

Just the other day, a debt collector with nothing better to do stopped by the ZipDebt Blog and submitted comments against an article I published about two years ago, titled Consumers Should Still Be Wary of the New “FTC Compliant” Debt Settlement Companies.

Normally, when a debt collector posts a snide remark on my blog, I just delete the comment and don’t bother to respond. But these particular posts provide a pretty good X-ray of the mindset of a debt collection “manager,” someone who was apparently good enough at the intimidation game to get promoted to a higher level. I always tell consumers they CAN settle debts on their own, but should get a good COACH on board to help them through the process. And this particular set of comments illustrates why. You’re dealing with people who are taught to repeat the same falsehoods many times daily, to the point where they become very convincing and even start to believe their own propaganda.

In his first comment, the collector focused on a statement I made within the article where I noted, “We have recently had instances where one major creditor routinely refused to accept the final installment on settlements negotiated by third-party firms, and clients were experiencing problems with those settlements.”

What you are saying here is the creditor accepted a structured settlement then refused to accept the final payment to settle the debt? That would be an illegal collection practice by the creditor and in no way a reflection of who negotiated the debt. Once a settlement is accepted the creditor cannot back out of it once both parties agree. That would mean they could promise settlements as a way of getting monthly payments. Maybe you should check your facts or stop lying to your readers.

Nice tone, eh? Note that I’ve never once heard from this individual before he posted this. The language tells me this is a person who is prepared to *start* from the assumed position that I am lying to my readers. He doesn’t actually know anything about me at all, has not taken the time to fully digest what ZipDebt is all about, yet is fully prepared to dismiss what I’ve written. This arrogant and condescending tone is sadly typical of many debt collectors and managers. It’s too bad, really, because I firmly believe collectors would recover far more for their clients if they displayed a little respect and compassion once in a while.

The truth is that in the months before I published that article there had been multiple instances of a specific creditor welshing on documented settlements that had been negotiated by debt settlement firms on behalf of consumer clients. I did not say it was something that always happened, or that it was happening with all creditors, merely that we had “recently had instances” where this occurred. The practice of reneging on documented settlements went on for quite some time. Here is one example that was discussed publicly on Steve Rhode’s blog, about a year after my article mentioned this.

Yes, Mr. Debt Collection Manager, of course this is illegal. Are you asking us to believe that major credit card banks and/or collection agencies never do anything illegal? Seriously? If that is the case, why did the new Consumer Financial Protection Bureau recently fine Capital One $140 million and American Express $85 million, both for multiple violations of numerous laws pertaining to collection of delinquent accounts? Why is your industry always the #1 source of complaints to the FTC, year after year after year? After everything we have seen in the past half-decade, from the subprime mortgage meltdown and credit default swaps, to the robo-signing scandal, is there anyone who still thinks the big banks won’t break the rules if it means billions in profits?

Moving to the collector’s second comment, we have the following masterpiece:

I’ve worked in debt collections for the past 5 years, 3 of them as a manager of a debt collections law firm. Some of the statements I’m seeing on here make no sense, for example; Rodney, why would you have $133k in debt when you are telling us you had the ability to pay $7,000 a month to settle. In addition to that most credit card companies are not willing to extend a low settlement 30%-40% on the dollar without the charge-off. Why would the credit card companies forgive that much debt before they get their tax write-off (charge-off). In addition to these funny statements of settling over 100k in debt in 6-10 months (which would be wealthy people taking advantage of the credit card system) thanks for raising my taxes while you have money to pay your debts.

There are so many false statements and misrepresentations in the above paragraph, I’ll have to break it down sentence by sentence:

Bogus Remark #1: “Rodney, why would you have $133k in debt when you are telling us you had the ability to pay $7,000 a month to settle.”

This refers to a comment posted by a client who had settled all his debts using my ZipDebt program. The full comment can be read here, but this is the relevant portion:

I just achieved my last settlement agreement using Charles’ program. My wife and I had 10 credit card accounts and original balances of $133k when we started the program just back in September 2010. So less than 7 months later we’ve settled (or have made settlement agreements with payments due over the next 2 months) of just under $49k.

Here we see the old-school debt collector mindset at work. If the client paid out $49,000 over seven months to settle their $133,000 of credit card debt, the immediate assumption is that the client had *cash flow* of $7,000/month to work with. Mr. Debt Collection Manager applied the standard “deadbeat” assumption to Rodney’s comment, implying he had plenty of income to pay his bills with, but chose not to. Yet the reality was that the client had experienced a huge pay cut and was forced to rely on his credit cards to survive, then burnt through his liquid savings in a futile attempt to remain current with his creditors. The total minimum payments for Rodney’s $133k were more than $3,000 per month, yet he could barely cover $500/month due to his loss of income. The $49,000 for settlements came from a LOAN against his 401(k) account, another loan from his FAMILY, and the $500/month he was able to set aside in lieu of regular payments.

The problem here is that Mr. Debt Collection Manager does not understand a very basic principle of financial accounting: Income and assets are not the same thing! Rodney could simply have filed bankruptcy instead, but chose to borrow from his retirement account and from family so he could settle instead of file bankruptcy. Mr. Manager also apparently doesn’t grasp the fact that some of his fellow debt collectors *made money* from Rodney’s decision, via commissions earned from those settlements!

Bogus Remark #2: “In addition to that most credit card companies are not willing to extend a low settlement 30%-40% on the dollar without the charge-off.”

I have to scratch my head on this one. All major creditors, with perhaps one exception, prefer to reduce the loss declared at time of charge-off by offering settlements prior to that deadline. During the financial crisis, the banks cleared out hundreds of billions of dollars in credit card receivables through the process of offering direct settlements to distressed consumers. I have thousands of such letters in my database, and about 80-90% of my clients’ settlements are negotiated before the charge-off date. The collector is totally wrong about this statement, but perhaps what he’s actually mad about is that most of this direct settlement activity (before charge-off) did not involve third-party agencies. Translation: If consumers can actually settle on their own with the banks before charge-off, that means a lot less commissions will get paid to collection agencies.

Also, a settlement *is* a charge-off, of that portion of the balance that gets forgiven via the settlement. A “manager” working at a major law firm should be well aware of these very basic accounting facts, but as you may have guessed, one doesn’t need to be a genius to manage a collection agency.

Bogus Remark #3: “Why would the credit card companies forgive that much debt before they get their tax write-off (charge-off).”

What tax write-off? There is no “tax write-off” associated with charge-off. Charge-off equals a loss to the creditor, which means lower profits, which means a lower bill for taxes. Reduced profit is not a tax benefit! It’s a loss, period. Anyone who believes otherwise is welcome to cite the relevant tax code.

Bogus Remarks #4 & 5: “In addition to these funny statements of settling over 100k in debt in 6-10 months (which would be wealthy people taking advantage of the credit card system) thanks for raising my taxes while you have money to pay your debts.”

“Wealthy people taking advantage of the credit card system”? This is completely absurd. As I noted above, the client in question was in desperate straits financially, did not have the income to make his minimum payments, and used his few remaining resources to take the responsible path of negotiating settlements with his creditors.

This type of mean-spirited debt collector cannot allow himself to think for one minute that the debtor might really have a financial problem. Nope. If you cannot “just pay your bills,” it must automatically mean you are a lowlife deadbeat, or a wealthy person trying to scam those poor credit card banks – you know, those same banks that almost brought down the entire world economy. Yep, those poor bankers are being taken advantage of and really need protection from us big bad consumers (aka ZipDebt clients :-)).

And what’s this laughable nonsense about “raising my taxes”? Talk about apples and oranges! There is no relationship whatsoever between the personal income tax rate set by Uncle Sam and losses incurred by the credit card industry. Last time I checked, Congress and the IRS were not too concerned with increasing Federal taxes every time Citibank posts a quarterly loss.

Now, if you are a consumer trying to settle a credit card debt, imagine running into this particular debt collector on the telephone. Here is an individual prepared to rattle off a string of lies with enough confidence to make his pronouncements sound like Holy Writ, who is willing to bully and browbeat a distressed consumer into making payments no matter what. Should consumers expect compassion, mercy, or even honesty and plain dealing from such a collector? Absolutely not. Arrogance, condescension, accusation, and flat-out lying are what you can expect.

Again, when you repeat the same lies hundreds of times per week, you start to believe those lies yourself and become very convincing at telling them to the next person on the list. For consumers to successfully negotiate with this type of collector, training and ongoing coaching is required. Collectors like this one are actually quite easy to handle when you know the ground rules, understand how the collection process actually works, and have some training on how to respond to these tactics. That’s what I do here at ZipDebt. I arm consumers with the tool kit needed to successfully negotiate settlements with original creditors, collection agencies, collection law firms, and debt purchasers.

It’s pretty funny, actually. Whenever I post the results achieved by ZipDebt clients proving that DIY debt settlement is a far more effective solution than hiring a debt settlement company, I’ve been attacked by people working inside the debt settlement industry. I’ve been accused of helping people “game the system,” and told my results were “too good to be true.” Based on the comments posted by Mr. Debt Collection Manager, it seems debt collectors don’t believe me either. I’m fine with that though. If they are mad at me too, I take it as a good sign that what I do works very well for consumers. 🙂

DIY Debt Settlement Myth #9: I Just Make One Monthly Payment And They Will Take Care Of Everything For Me

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This is the ninth in a series of posts discussing the most common myths about do-it-yourself debt settlement. In this post, I’ll discuss the myth that a traditional debt settlement approach provides peace-of-mind for consumers who enroll in such programs. What many consumers want is to be able to make a single monthly payment into their debt program, with the expectation that the debt company will handle everything smoothly from there, with little to no involvement required by the client. Consequently, the sales pitch for traditional debt settlement is built around this important need.

In theory, you make a single monthly payment into an “escrow” account to build up funds for settlement, and the company is supposed to handle all contact with your creditors. However, out here in the real world there is a big problem with this approach. I’m referring to the initial 6-month period that leads to charge-off status for your accounts. With most major creditors, the account is worked by an in-house team of collectors up to the point of charge-off, although there are exceptions where pre-charge-off accounts are outsourced to a third-party collection agency. Either way, your creditors do NOT want to hear from a debt settlement negotiator. They want to talk to YOU instead.

How does your debt relief firm handle this problem? The short answer is: They do nothing for the first six months! Needless to say, making payments into the program for six months when literally nothing beneficial is happening is hardly conducive to peace-of-mind! For many people, it represents some of the most intense stress they have ever experienced.

This is a real dilemma for the traditional debt settlement company. If they send out a Power-of-Attorney or a cease communication notice during this initial 6-month phase, it could prompt the creditor to escalate early and place the account with a law firm in the client’s home state. This almost automatically creates a pressure-cooker situation and results in high percentage settlements at 70-85%, or payment programs for the full balance all over again. So a savvy negotiation company won’t send out such triggering documents, and instead they will coach you to lay low and just let the accounts go past charge-off, after which they will intercede with the assigned third-party agencies and try to negotiate settlements on your behalf.

Meanwhile, you will continue to receive a barrage of collection phone calls and scary-sounding notices. As anyone who has ever been on the receiving end will tell you, peace-of-mind goes out the window when the collection bombardment kicks into gear.

To make matters worse, by going the route of traditional debt settlement, you cost yourself six precious months of inactivity, a period in which some of the best settlements become available (at less risk to you legally). So virtually nothing gets “taken care of” during that very important initial period. After that, creditor contact on the part of a debt settlement company is still minimal – they generally wait until you have enough money built up in your account for them to start making offers.

Myth busted. The “just make one payment per month and we’ll handle everything” approach sounds great in theory, but it only adds to your stress rather than reducing it. Little or no creditor contact takes place for the first six months, and after that, usually only when you have money to settle with. Meanwhile, it’s open season on you, with all the usual collection actions taking place, including potential legal action. Instead of waiting six months to start, it’s far more effective to tackle the project on your own, so you can take advantage of the settlement opportunities offered directly to consumers on accounts approaching charge-off.

DIY Debt Settlement Myth #7: A Debt Settlement Program Will Stop the Collection Bombardment

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This is the seventh in a series of posts discussing the most common myths about do-it-yourself debt settlement. It’s common knowledge that your phone is going to start ringing off the hook the moment you begin missing payments on your credit card accounts. Virtually all major creditors have automated dialing systems that are triggered off the lack of a payment being recorded by the due-date, and the bombardment can be truly unbelievable. Some creditors program their systems to call you dozens of times per day, in an attempt to get you on the phone and wear you down until you make a payment (whether or not you actually have the funds to do so).

One of the chief reasons people hire debt settlement companies is because they don’t want to deal with this bombardment of collection phone calls and they believe enrollment in a company program will put a stop to it. However, as I’ve written in other posts in this series, the banks do not recognize any need for debt settlement companies to exist in the first place. So there is no formal program that provides any sort of protection against the normal collection process utilized by creditors. Any debt settlement organization that promises you will not receive any collection calls while in their program is actually in violation of FTC rules for key disclosures required by such firms, one of which is to make it clear they can’t stop the calls.

There is only one way that a debt company can get your phone to stop ringing. They can send a “cease & desist” notice to your creditors, along with the Power-of-Attorney you granted them to handle your case. Yes, this will usually get your phone to stop ringing off the hook, since most banks will respect a firm request to cease communication via telephone. However, nowadays this is equivalent to waving a red flag in front of a charging bull. I’ve seen numerous situations where an account that could have been settled for 25-30% instead went quickly to lawsuit status (hello 80%!) after receipt of a cease communication notice. Once a creditor gets the idea you will not communicate with them, why should they go easy on you? What choice have you left them but to pursue a legal remedy against you instead?

Don’t make a tough situation worse by using obsolete and dangerous tactics that will only backfire on you. It’s a very simple matter to manage the collection barrage using call screening techniques that you can easily learn from a good coach. There is no magic to it, just one or two tricks of the trade. You establish a dedicated number for this purpose, and then proactively manage the frequency of contact you have with your various creditors. It’s not difficult at all to get the phone to quiet down so you can go on living your life and working through this process with a minimum of stress and worry. It is totally unnecessary to pay someone else to stop the phone from ringing, especially when the only tactic they can use will greatly increase your risk of litigation.

Myth busted. Under FTC rules, debt settlement companies must disclose that they cannot stop collection calls, and there is no viable method of stopping the collection process that doesn’t increase risk of litigation. Consumers can easily manage the collection process on their own by using simple call screening techniques, combined with proactive communication with their creditors.

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.