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

June 19, 2012 by Charles Phelan Leave a Comment

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

June 14, 2012 by Charles Phelan Leave a Comment

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

May 30, 2012 by Charles Phelan Leave a Comment

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.

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

January 31, 2012 by Charles Phelan 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?

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.

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.

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!).

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.

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?

December 27, 2011 by Charles Phelan 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.

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

January 28, 2011 by Charles Phelan 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!