I generally begin any consultation I do with people who reach out to my company in search of help with debt with this question: “What has you reaching out to a perfect stranger? What is going on with you financially”? Then, I shut up and listen. I am sometimes the first person the caller has ever spoken to about the situation they are in.

The responses I hear vary, as does the time someone will take to outline the details of their hardship. By listening closely, I am able to hear the stress and fear they have about their debt. I often hear the struggles they have gone through to try and keep current with credit card bills, or the difficulty they have had in communicating with creditors and collectors.

The other day, I heard one of the simplest and shortest answers to my initial question that I have had to date.

“My Debt Is Crippling Me.”

While this response does not provide details I generally look to key off of in order to identify the debt pieces or solutions to putting the person’s financial puzzle back together, it said a great deal in a very powerful way.

Struggles with debt DO feel crippling. In the very sense that someone with a physical disability is forced to deal with every day of their lives. The stress and fear with debt problems are debilitating and can often manifest into actual maladies. The worry and frustration about money, and the lack of money, carries over from one day to the next. What am I going to do at the end of the month when these other bills are due? When will I ever be out of credit card debt? How did I get trapped in a home now worth far less than I owe? What if I get laid off with no savings? How would I get by with maxed out credit cards and no income?

One of the overwhelming benefits to people we talk with is that we can reduce, or even remove the stress and fear they have about their debt problem in one phone call.

This gentleman did not feel crippled when we finished talking about his problem because I plainly laid out the facts of his finances (after several additional questions to be sure), and was able to point out to him the mathematical rational solution to his debt. His solution did not involve needing to engage my company for a product or service, as he was past the point of debt settlement or a creditor sponsored hardship plan being a viable option.

He learned that, unlike someone who has a physical disability for the rest of their life, his crippling debt could actually be cured and with little fuss or expense. He was not at all excited to know that his only real option was to file for chapter 7 bankruptcy, but he saw the wisdom in doing so and hung up the phone with no fear and less stress.

I asked him before we hung up from the call “How crippling is your debt now?”.
He replied “Not at all.”

There is always and answer to recover from debt. The answers do often involve tough choices and some action steps that are not exactly a thrill to take, but can be arrived at through the process of elimination. Generally, I can walk through the following things and eliminate 3 or 4 out of the 5:

• Creditor monthly payment concessions
• Debt Management Plans through a credit counseling group
• Bankruptcy
• Debt Settlement
• Doing nothing (sometimes the right thing for brief period – couple months)

Knowledge removes the fear of the unknown, and unemotional, boring, old arithmetic is the compass to find your way to healthier finances.

My advice to anyone feeling crippled with debt boils down to the “Four Gets”:

• Get real about your finances;
• Get informed about your options;
• Get a plan in place; and
• Get started

If you would like to start getting informed the same way the man who inspired this article did, send me an email to schedule a consult: michael@consumerrecoverynetwork.com. I will consult with you personally.

I can also recommend scheduling time to speak with any member of the American Association of Credit Counselors (AACC) who are a diverse group of debt relief service providers committed to excellence working with people in debt.

Media Contact:

Ken Luck

(336) 553‐1804

kluck@rlfcommunications.com

Debt Relief Companies Form New Consumer Advocacy Organization

Raleigh, N.C. (Feb. 9, 2011) – In an ongoing effort to raise standards in the debt relief industry and improve consumer protections, a diverse group of leading debt relief companies have formed a new organization devoted to consumer advocacy. The organization is spearheaded by Steve Rhode, aconsumer advocate and founder of the website GetOutofDebt.org. Membership is by invitation only to companies who promote transparency and have a demonstrated track record in properly helping consumers address financial hardships.

The American Association of Credit Counselors (AACC) will include nonprofit credit counseling agencies, debt management companies, debt settlement companies and other providers who are focused on serving consumers in financial distress. The AACC name reflects the revival of an organization that existed with a similar mission but has been defunct for more than 20 years.

This is the first debt relief association formed solely to find collaborative ways to work for the betterment of consumers rather than to lobby on behalf of the industry.

“We’re not an official association, we’re not a traditional industry group that anyone can join as long as they are willing to pay the membership dues,” said Rhode, one of the most vocal and active advocates for consumer interests. “We’re really a club, a club that only accepts the best companies who’ve demonstrated a commitment to the highest standards in serving consumers and who want to work collaboratively to protect consumers facing money troubles.”

All member companies in the AACC have agreed to a set of common standards, including:

• • Charging no upfront fees for debt settlement services;
• • Providing customers with good faith estimates before they enroll in any debt relief service;
• • Outlining the potential risks of a debt settlement or debt management program in easy‐to understand language;
• • Providing openness and transparency regarding performance results; and
• • Making top management readily available to their customers.

The group has adopted the motto “Putting Consumers First.”

“We are thrilled to be a part of this group, which is really focused on creating educated consumers and campaigning for their rights and protection,” said Chris Schornak, president of Debt Solutions Network, one of the founding members. “There are a wide range of debt relief options out there, but not every option will work for every individual. It’s exciting to see a group of companies standing up and saying that education is more important than deception and that the needs of the consumer are more important than a company’s bottom line.”

The genesis of the organization came out of an event Rhode hosted in late November called “A Group Conversation about Restoring Truth to Debt Relief.” The day‐long meeting brought together heads of debt relief companies, consumer advocates and regulatory agencies to discuss ways to improve consumer protections while still making debt relief services available to those in need and explore ways to increase the credibility of legitimate debt relief providers.

“That meeting created some great conversations among various debt relief providers about ways to better the industry as a whole and to make services from credible providers more readily available to consumers,” said Rhode. “Those discussions have continued over the last few months as these companies, while competitors, have found they have common interests and a shared vision for improving the industry. They felt there would be strength in numbers and have decided to work together for change.”

Charter members of the organization are:

• • Active Debt Solutions, a Florida‐based company that offers credit counseling, debt consolidations, bankruptcy referrals, and debt settlement programs;

• • Cambridge Credit Counseling , a Massachusetts‐based nonprofit that offers financial education and debt management services;

• • CareOne Services Inc., a Maryland‐based company that offers credit counseling, debt management and debt settlement programs and bankruptcy referral services;

• • Consumer Recovery Network, an Idaho‐based company which provides DIY instruction and offers debt settlement services

• • Debt Solutions Network LLC, a Michigan‐based company that offers debt settlement and debt consolidation services;

• • New Era Debt Solutions, a California‐based company that offers debt settlement services; and

“We take great pride in being part of a group that puts consumers first,” said Alex Viecco, vice president of New Era Debt Solutions. “This is something that has been lacking in this industry for a very long time.”

The original AACC was created in 1955 and disbanded in the 1980s.

About the American Association of Credit Counselors

The American Association of Credit Counselors was founded with the mission of “Putting Consumers First” in debt relief services. Membership in the organization is by invitation only and all of the members have agreed to meet specific standards and principles in offering their services. The AACC has eight members. For more information, visit http://newaacc.org/.

San Diego, CA (PRWEB) February 10, 2011

Consumers and small business owners are negotiating with their creditors and settling their own debt obligations without the need for professional third-party assistance, according to ZipDebt.com, one of the nation’s leading providers of self-help financial coaching for struggling consumers.

America’s economic recession has pushed millions of individuals toward bankruptcy with massive levels of debt. As small businesses fail and previously high-income households face the new jobless environment, credit card debt loads of $100,000 or more have become much more common. For people with such high debt balances, formal bankruptcy often means filing under Chapter 13, which can be a difficult five-year process that entails partial or full repayment of the debts. Debt settlement through creditor negotiation provides many of those debtors with a realistic alternative to bankruptcy.

According to Charles J. Phelan, founder and President of ZipDebt.com, consumers and small business owners can avoid Chapter 13 bankruptcy if they educate themselves about negotiating compromise solutions with their creditors. “Many of the people who come to us have very large debt balances, and none of the usual ‘one-size-fits-all’ debt solutions will work for them,” Phelan says. “We teach people a process called Fast-Track Debt Settlement™. It has the most successful track record compared to any other approach to debt settlement.”

Phelan recommends the “do-it-yourself with coaching” approach to debt negotiation and settlement because it gives consumers complete control over the process. Instead of paying thousands in fees to a professional firm, consumers can apply 100% of their available resources to eliminating problem debt. “There is no reason for someone who owes $100,000 to pay $15,000 in negotiation fees,” Phelan says. “We’ve taught thousands of people how to settle their own debts, and it’s a much faster process without the stiff fees.”

For additional information on debt settlement coaching for high balance debtors, a free report is available for immediate download at ZipDebt.com.

About ZipDebt.com

Charles J. Phelan has been helping consumers avoid bankruptcy since 1997. A former executive with one of the nation’s first debt settlement firms, Phelan launched ZipDebt.com in 2004 to provide an affordable alternative to professional debt services. ZipDebt.com’s audio-CD training course is supported with personal one-on-one consultation and follow-up coaching, and the program successfully helps debt-challenged consumers achieve professional results for a small fraction of the usual cost.

Not all are created equal.

Watered Down Content Sites

Some personal finance web sites have a great deal of exposure and publish a ton of material.  Some content heavy sites  barely scratch the surface on a particular topic because they are geared toward mass appeal. In other words, the more “milk toast” the message, the more reader applicability.

I can think of several really big sites with content updated daily, but that allow no interaction with their readers through open commenting. These sites also tend to have a lot of ads. Milk toast (bland) content with lots of web traffic to sell ads. Not a fan….

Informative & Innovative Sites

On the other side of the spectrum you have web sites with good content and large readership that allow and encourage comment participation. Some of these also have community forums that are a great place to learn even more specifics into a particular aspect of debt and credit.

One of the sites that I like and have frequented for several years is www.debtconsolidationcare.com. I in fact post in the forums on that site anonymously as time permits.

The DCC site offers many great self help tools and feedback for debt relief with a focus on debt settlement, debt management, dealing with debt collection, what you can do to repair and improve your credit, debt consolidation and more. Big fan….

I have connected with the site owner Vikas on several occasions. One of things that so impressed me about Vikas and his motivation and vision for the DCC site – his focus on providing free, or affordable resources for consumers who are already struggling financially. His goals are similar to what I endeavor to provide here on Debt Bytes and through my company, Consumer Recovery Network.

Over the years that I have participated by commenting in the forums at the DCC site, I have witnessed many people use the site as a resource for their own debt relief efforts very effectively and who then continue posting their experience and sharing with others long after their own personal financial storm had passed – Paying forward the help, feedback and support that was available to them.

The Debt Consolidation Care community is a stand out, as are other sites that I will cover in the future.

I encourage Debt Bytes readers to check out the DCC site and to openly participate when there.

Below is an announcement about Active Debt’s discount for services being offered to those consumers who have been left in a lurch by debt relief companies who, as I wrote about last August, have failed & bailed taking their customers money with them.

Of particular interest below, you will see where Active-Debt has long had the practice of providing steeply discounted performance based service fees to our military service members. THAT is something that catches my attention and further establishes this company is a cut above the rest and is working with people for the right reasons!

Active Debt Offer Huge Discounts & Consumers A Way Out of Their Old Contracts

Did you sign with a debt settlement company who charges all of their fees before service and do not know what to do? Are you afraid that they will take your money and simply close, leaving you with NOTHING? If you have been taken by a Debt Settlement company who you can no longer contact because they are out of business, or you are currently enrolled in a settlement program that you paid up front fees for their service and you feel stuck, we are here to help.

As a “performance based” debt settlement company, committed for four years to charging a settlement fee as percent of savings, we are announcing a huge discount to anyone who is currently enrolled in a plan (or was in the last 12 months) where they were charged the settlement fees before they received any service! We offer the same huge discounts to Veterans as well.

Any client of a firm that signed a contract charging you their fees up front, we will take your case and ONLY CHARGE YOU 10% of how much we save you at settlement! There are NO OTHER FEES. The bank charges $9.85 but we do NOT charge a monthly account fee and we are ONLY paid when we settle a debt.

Our typical fee is 30% of how much we save our client at settlement. Now, for consumers enrolled in a plan charging them front fees without service, we have reduced it to our Veterans rate of 10% of savings- a 66% discount. For example, if we settle a $5,000 debt for $1,500 we save you $3,500, our fee is $350!

We are making this offer for a limited time, as it has come to light that a significant number of companies have simply gone bankrupt over the last four months and we are certain many more will follow. This has left their settlement clients with nothing- they are out their fees and are receiving no service. These unscrupulous companies charge(d) hefty upfront fees for their settlement program, a practice generally outlawed by the FTC in late 2010. If you have any questions regarding the offer, please contact Sean Ryan at 866-720-7483 Extension 101 or email to sean@active-debt.com. Our contracts are viewable on our website. We are a founding member of the AACC, a small association of committed settlement companies who put American consumers first!

Mish has a post up today: Food Stamp Usage Up Nationally

It shows my state of Idaho having the largest year over year increase in residents receiving food stamps, or what is now referred to as SNAP. SNAP stands for: Supplemental Nutrition Assistance Program.

Reading the post was timely for me, as you will understand in a moment. After reading some of the comments to the above linked post by Mish, I was motivated to post a comment of my own.

I am writing this post and sharing the contents of my comment with readers of DebtBytes because many may not know the policy we at Consumer Recovery Network adopted to help feed those who often go hungry inside the communities of many of our customers across the nation.

Here is the comment I left:

“I have been reading Mish for years and assume this post is intended as a real time representation of deflation.

Reading the comments (and the fact that I am really hungry right now), prompted me to add to the discussion.

Today my family is participating in “Feel the Hunger“.
I made my daughters each a 1/2 cup of rice before school. It’s all they get to eat for the whole day. My youngest ate 2 tbls prior to leaving and took the rest with her. My oldest held off from eating any, but took the full 1/2 cup with her.
All I can think of right now is bacon…

There are many locals in my small North Idaho town participating.

This is a good learning tool for my daughters.

There are local answers to hunger, but they depend upon the participation of those better situated.

The work I do at my company focuses on assisting mostly middle class families in financial turmoil. For those suitable to use the approach we advocate, we provide a good alternative to bankruptcy (mostly alternative to chapter 13). Our fee since opening our doors for any direct hands on service is wholly contingent upon our success. In over 20 states we do not collect the fee, but still provide the service. In lieu of collecting the fee we encourage our customers donate the calculated fee to low income legal aid in their area, or to their local food bank in the form of nonperishable food items.

We are not a nonprofit. We like profit as much as the next guy, but we keep our fees low and our results and retention high. Our reputation is exemplary in an industry known to scam and leave people in a lurch.

We do the work we do, the way we do, for a myriad of reasons.

We do not advertise, as the cost would be borne by our customers who are not in the best position to fund higher fees. We mostly rely on word of mouth and organic exposure.

My point: Be part of the solution when and wherever you can.

Man… I could go for burger right now…”

The people we help here in Idaho and in Mish’s state of Illinois are included in that list of over 20 states where we encourage donations to those in need.

I will cover why we designate low income legal aid offices as donation recipients in a later post.

Companies like Consumer Recovery Network exemplify, in our chosen unique way, good corporate citizenship. If you have the ability, next time you stop for groceries, consider picking up a few extra food items and drop them off at your local food bank.

Oh, and if you happen to be in Sandpoint Idaho, I could go for a bacon cheeseburger right now….

Double Oh, check out Mish’s blog. He gives a rip about the state of economic affairs in this country.

Debts that go unpaid follow a relatively predictable pattern.

When first missing a payment, the phone rings… a lot.  After 30 days late your account is reported to credit reporting agencies (CRA’s) as such.

Next, the phone rings… a lot.

The pattern of the phone calls when you are 60, 90, 120 days late will often include offers of lower payment arrangements and hardship plans. Your credit report will continue to receive unsightly blemishes in 30 day intervals.

As you get nearer 180 days of nonpayment, some of the collection calls will take on a new tone. If you have not already thrown your phone out, changed your number, or continue to answer in your best disguised voice informing the caller that “um… that person does not live here”, you may get offers to settle the debt for less than what you owe.

At 180 days of delinquency (sometimes 210), something strange happens. Suddenly the background melody you became so accustomed to while watching television, or spending time with family, suddenly ceases. No more getting up to check the caller ID to see if you want to answer. No more checking messages for 10 minutes listening to “this call is for ____”, quickly followed by “message deleted”.

When you realize that the incessant phone calls have ceased seemingly overnight, you may even be compelled to dance a jig while singing “ding-dong, the witch is dead, the witch is dead” like scare crow traipsing down the yellow brick road in the Wizard of Oz.

Not so fast…. All that has happened is that your debt has been charged off and is in limbo while your creditor figures out which part of the collection pipe line they are dropping your account into.

Within a matter of days, or weeks, the monkey reappears and plants itself firmly on your back. He announces his presence daily, starting at 8 am and continuing through 9 pm. Riiiinnnggg… Riiiiinnnggg.

Your account has now been placed with a collection agency.

The pattern I present here typifies what will occur in the first 6 months of nonpayment with most credit card issuers. As you can see, there will be some opportunities.

For many people faced with the inability to pay their credit card bills on time, all the time, it can make sense to capitalize on these opportunities. You should look to optimize your success by:

• Following an intelligent design that can be tailored to your specific set of financial circumstances.
• Design a plan using information about what each of your specific creditors will do and when.
• Be prepared to adjust. Your creditors may change their recovery policies requiring you to tweak your plan.

You can learn more about how “charge off” can be friend or foe by following the Debt Bytes continuing series on the topic: Click Here

If you would like to speak with someone who can assist you in determining what your next best step to getting out of debt may be: Click Here to schedule a Consultation. A CRN specialist can assist you in learning the details you will need to consider once they know more about you. Consults are provided at no cost.

The term “charge off” describes an accounting function followed by your lenders. When speaking of revolving consumer credit card accounts, a charge off occurs when the credit issuer either chooses, or must, recognize an unpaid loan balance as a loss.

For lenders, losses are bad news. The bad news gets reported and can affect anything from loan loss allowance/reserves, securitization, liquidity, even solvency.

Because of the bad news nature of a charge off, your credit card issuer will generally wait until the maximum time allowed to charge off your unpaid debt. The time frame for your creditor to recognize the loss on your unpaid credit card balance is outlined in Generally Accepted Accounting Principles (GAAP) and is typically 180 days of consecutive nonpayment, or what the Office of the Comptroller of the Currency (OCC) has designated as “seven zero billings”. There will be instances where charge off will seem to occur at 210 days of nonpayment.

Most lenders will wait as long as is allowable to take the charge off hit to their books, but they can take the hit earlier than 180-210 days. It’s just not a common practice.

What does this mean to you?

While charge off is an important accounting function for lenders, it is also a major event that applies to, and will affect, the efforts of a consumer who is experiencing financial difficulty.

While you are trying to navigate your inability to pay all of your debts and when evaluating the different debt relief options available to you, understanding the timing and affects of your accounts charging off will give you a needed advantage in your planning and timing.

The period leading up to, during, and after a charge off of your unsecured debts will impact:

• Debt collection efforts with your original creditor
• Debt collection with outside collection agency
• Debt Purchasing and subsequent collection efforts
• Debt Settlement/Debt Negotiation
• Credit Reporting
• Debt Management Plans
• Risks of being sued on unpaid debt
• Biting the Bullet and Filing Bankruptcy
• Delaying a Bankruptcy

Each one of the bullet items above are deserving of a separate article and will be posted on debt bytes as I complete them. If an above bullet is a click-able link, it will lead to coverage of that topic individually.

If you would like to speak with a pro for free to discuss your specific situation and what you may be able to do to deal with it, Click: Free Consultation Request. You will be contacted by a CRN specialist who can assist you in identifying your options and next best steps related to pre or post charge off debts.

The main ingredient to your success in debt negotiation is; money. How much you can bring to the table, and over what period of time, in order to fund offers to settle your credit card debt for less than the full balance. How much of this key ingredient you have on hand at critical moments of opportunity will be the main consideration for how you prioritize multiple debts that can be settled.

In answer to a reader question linked below, I stated it is best to fund the lowest percentage offers first. There is a bit more to it than that.

Settling debt with your original creditors such as Chase, Bank of America, Citi Bank, Wells Fargo etc… prior to charge off, will be your first optimal targets.

By settling with your creditors before charge off, you can avoid the accounts being placed in the collection pipeline that I discussed in a prior article: Collections and the A.S.S. principle. You will find that you often maximize savings in the debt settlement process by dealing with many of your accounts in the early stages of default while they are still held with the original creditor.

What each creditor will settle at prior to your accounts entering into second stage collections is often a moving target. How long you have had the account, if you have made recent balance transfers, recent cash advances or large purchases outside of normal spending habits, all can affect the balance reductions that will be approved (even whether balance reduction will be offered at all). Keeping up timely payments to other unsecured creditors, but not the account(s) you are trying to settle also may affect your reduced balance targets.

Consumers should look to any and all available cash flow resources in order to settle as much of the debts that are optimized for reduction as early as possible.

Settling Debts with Collection Agencies

While getting as much debt out of the way before accounts start to be placed with outside agencies is the first order of business with debt settlement, there are reasons to delay. With some of the issuers you may strategically delay settlements because the percentage of savings will be better with an agency. Also, there will likely be accounts that you simply cannot get to quick enough due to available cash flow and will have to settle with an agency later on, but at sometimes higher rates. This is part of the process and is unavoidable for many implementing a debt settlement approach to getting out of debt.

Settling Debt Placed with an Attorney Who May Sue you

Your primary goal with debt settlement will be to fund as many or all offers prior to an account being placed with an attorney who is authorized to sue you in order to collect.

You may have accounts with creditors who are known to use these types of collection attorneys more frequently and sooner than others. It will be an important part of your early strategy design to identify these accounts and where ever possible, make plans to mitigate your risks of being sued. Yes, there are methods to reduce these risks. Negotiating debts placed with attorney debt collection firms happens every day, but the percentage of balance reduction is generally not as favorable as it could have been had the account been settled earlier.

Intelligent Design to Settling Debt

Once you identify your specific accounts and balances and match them up with the current policy of each of your creditors, you are ready to set your targets and expectations for reduction and can start to map out a plan to fund settlements in the first stage of collection with available cash flow.

In second stage collection you will have to react to each agency and their policies that are handed to them by their boss, your creditors. You will need to be aware of collection tactics and the best timing to get as close to the lowest bar for settlement percentages available. Your percentage of savings targets in second stage collection will be a moving target based on calendar dates, policies, the agency it has been assigned to etc…

Following the design of a debt settlement plan sounds like a maze, but it isn’t. Not if you have access to all the details you will need to put the plan together and the ongoing assistance needed to navigate the often inevitable detours that happen along the way.

There are credible and reputable sources available to consumers that can assist in putting the design in place and help to implement it. The plan must be individualized. In all my years working with consumers I have yet to work with an identical file. Certain people’s situations may rhyme, but each is unique and different. Individualizing a plan will optimize your results. Look for sources like CRN that recognize this.

This post is the result of a reader question I answered over on the CRN site found here: Which debts should I settle first?

If you have a debt question of your own, click the following link, submit your question and provide a little background about your situation and get answers from an expert: ASK CRN

After 10/27/10, virtually all of the companies offering to settle debt for a fee, will have to charge those fees based on a contingency. In other words, you pay for the service contingent upon who you hire, having successfully negotiated a reduced pay off amount with your creditors that you then accept and fund. Makes a ton of sense right? Yes indeed!

People will, however, still need to approach the idea of hiring someone to settle debts with caution.

Where We Were

Debt negotiation companies have, for the most part, been able to charge upfront fees. Often, the fees have been spread out over 6 to 18 months or more. This practice has long been recognized by some of us in the industry as one of the leading causes for consumers to “fail and bail” from their settlement program.

• The reason for the fail; money that could have been aggressively saved up to fund the earliest settlement offer went to the service providers fees instead.
• The reason for the bail; creditors and their assignees continue down a relatively predictable path to collect on unpaid accounts which can eventually lead to filing a court action to force you to pay.

Being sued does not necessarily mean the death of your debt settlement plan, but you need resources to address the lawsuit before it becomes a judgment. Without the money needed to address the issue, it will often mean the end of the road. Having paid upfront fees to a company who put their profit ahead of your success means you have limited, or no, resources to maneuver through the different stages of collection.

Where We Are

You may have, or currently do, recognize a debt settlement plan to be a realistic approach for you to avoid bankruptcy. Having enrolled (or thinking of enrolling) in a plan with a company whose fees were/are/still paid prior to successful negotiations is equivalent to gambling. You bet you can get through the settlements before getting sued. The company you hired bets they can get you to pay them all their fees before you bail.

Many companies who sell or perform debt settlement today will find that, without the ability to charge the high upfront fees, they will not be able to keep the marketing machine going. They will leave the industry. In their wake, we will hear from many more consumers who were sold the hope of avoiding bankruptcy by sales people whose only motivation was to meet a quota, keep their telemarketing chair and get paid. For more than a year, the media and internet has been ablaze with stories of people being taken in by the promises of many players in the debt relief industry. They are a statistic of the “fail and bail”. The statistics will get worse as several companies close their doors and leave their customers in a lurch, having paid in advance for a service that now will not be completed. At least, not by the people who were already paid for it.

Where We’re Headed

Do I sound a bit jaded? That’s because I am. So much so, that I can see where we are potentially headed in this industry.

Beginning in September, I think we will start to see some similarities with new and existing companies offering debt settlement  based on the now required (in most cases) contingency fee structure. Two of the similarities will be:

1. The new sales approach; “You need to come up with money as quick as possible to settle with your creditors”. – This is a good thing! It has been missing from the message of the majority of people selling debt settlement for a decade.
2. Many of the companies offering success fee debt settlement will charge between 25%-30% of savings where possible (some states have limits or caps on fees –Illinois is capped at 15%). – This is a bad thing!

When comparing 50% of your account balance as an average settlement, 30% of savings is roughly the same as charging the 15% of debt enrolled that has been the average in the industry to date. Fees could actually be higher than before with debts settled early in the program and for less than 50%.

We will still see high “fail and bail” statistics because companies will settle a debt and collect their contingency fee first, before moving onto the next settlement. There really is no problem with that per say. They did a job and should get paid for it. It is the correct model to have. Always has been. The problem is if the fee is too high, it still takes just as long to settle the debts as it did prior to the FTC banning upfront fees for a settlement service.

Where We End Up

I estimate it will take a year for the industry to settle in to the new business and operational realities created by the new FTC rules. Some companies are going to try to adapt, only to quickly find it no longer worth their while. Some will find that they should have been doing business this way all along, and will thrive. The amount of companies around a year from now will be far fewer than we have today. Within 12 to 18 months, the industry will have completed the all too necessary cleansing of those who came to it in order to make a quick buck.

BOTTOM LINE:

If you are a suitable candidate for debt settlement, which is someone who otherwise would have to file bankruptcy, look for companies with the lowest contingency fees. Even better, look for a company that: Offers low fees and other flexibilities that will lead to your success!