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Debt Settlement Companies Suffer from Premature Representation

First, I’d like to say thank you to Steve Rhode for the invitation to make a guest post. Steve, I greatly appreciate you opening up your venue. Rather than focusing on what Debt Relief A La Carte offers, I’d like to take this opportunity to discuss why. It will be much more meaningful for all. I’ve been waiting for a podium such as this, to open up for debate, the premature aspects of debt settlement. I couldn’t have dreamt of a better place.

Here we go…

The year was 1999, I was working for a Collect America franchise in Denver, as a collector and soon to be floor manager. I remember this day as if it were yesterday. My encounter that day left my head spinning with intrigue. It was my first dance with a debt settlement company. In my mind, I dissected their approach, their plan, the reason for their existence. Conceptually, I thought the idea was amazing. I viewed their existence as a way for the consumer to level the playing field. It made so much sense.

However, encounter after encounter, I began to notice a trend. It was rare that these companies ever had any money to actually negotiate a settlement. Instead of the debt settlement company playing the role of advocate, their involvement was more like an obstruction. What could have been a mutually beneficial scenario for all involved, ended up impeding our collection efforts. It was an ugly business model that had so much potential, if just done right.

If you asked me what is the most important thing to me, in respect to our debt settlement service? I would tell you sustainability. What is the key to sustainability? A mutually beneficial outcome for all involved. In my mind, the model that involves premature representation doesn’t achieve this. It is very frustrating to the creditor and collection community when representation doesn’t lead to a potential timely resolution. Then, when you couple this with the fact, that real life challenges to consumers are almost certain to impact the length of time even further. It’s beyond ugly. It’s representation with no potential solution in sight. It forced the creditor and collection community to a position of defense, and it’s so unnecessary.

The FTC rule, the individual state legislation, it’s all great. Especially, the advance fee ban. But, it missed big time on the main reason and true source of the Debt Settlement industries core problem – premature representation. What other industry does this? In what other capacity does someone represent someone else, when the potential for execution doesn’t exist?

I get why debt settlement companies offer to do it. One of the most appealing elements to a consumer is a debt settlement companies engagement. They want that representation to occur. Consumers don’t know any better, and by now this industry should. Maintaining the appeal should be less important than the consumers best interest.

Some of you may be scratching your head questioning why this is. I’ll explain… The collection community is well aware that a typical debt settlement plan takes years, and that they may potentially have to wait that long before settling. They’re also well aware that the completion rates for debt settlement companies are low. Both of these items cause some creditors to become more aggressive in an effort to become the priority and collect. Simply because there is a great chance that if they’re not settled with first or second, they may never be settled with at all.

In my opinion, the chances of a consumer being sued when they’re representing themselves versus when they’re prematurely represented, are night and day. I’m not saying that people who represent themselves don’t get sued, I’m saying that it isn’t done by invitation.

One twist of a knob is all it takes to offer debt settlement in a successfully dependable form. We twisted it the day I started my company over 10 years ago. We did so by only offering our Debt Settlement service to consumers, who have the financial ability to settle their enrolled debts right away. That’s it. That’s all it takes.

Our typical Debt Settlement client has $42,000 in debt, owes 6 different creditors, and has roughly half of it available to them via a loan from family, a 401k, IRA, equity in an asset, life insurance, or an annuity. Our strategy since inception has been to help them to find a way to generate enough money to settle their delinquent unsecured debts, all at once.

By creating the opportunity for our client, to get out of debt for x instead of y, we create value for everyone involved. We help a creditor, collection agency, or attorney capture revenue from an account that they may otherwise wouldn’t. We help the consumer avert a possible bankruptcy when they possibly otherwise couldn’t. We minimize the “what if’s”, by negotiating simultaneously to produce an end result for all of our clients enrolled debts, before they pay anything to anyone, including us.

The worst case scenario is there may be some accounts that may not be low enough for our clients to be able to afford to settle. In this situation, we give them the choice of us continuing to negotiate the account to obtain a lower settlement, negotiate a payment plan, or they have the option to unenroll the account from our service.

What has this one difference of only representing consumers when they have the money to settle led to?

  • A successfully reliable debt settlement business model
  • 94.2% of all enrolled accounts have been settled or entered into a payment plan. Disclosure: We have omitted accounts where our clients took our advice and paid the account in full to avoid the settlement designation on their credit report. All of the accounts had a balance of less than $1,200. The advice was based on the amount of savings versus a “paid in full” rating rather than a “settled” one.
  • Dramatic restructuring of the consumers monthly obligations – when a client uses a loan from their 401k for example, generally their loan payment is less than half of their previous related monthly expenses
  • Timely resolution – our Debt Settlement clients are with us for generally 30-90 days
  • Minimization to the possible exposures of debt settlement – we eliminate the need for a creditor or collection agency to pursue the consumer legally for the purpose of making their account the priority, since all enrolled accounts are negotiated simultaneously
  • Less exposure to interest and fees, since our clients generally settle their debts in 30 – 90 days
  • Client rehabilitation – again, since our clients generally resolve all of their delinquent debts in 30-90 days, their credit will begin to rehabilitate much sooner
  • Mutually beneficial outcomes for all involved – consumers resolve their issue within their capabilities. And, creditors benefit by liquidating an account that they may not liquidate normally, and from the time value of the settlement

You may say to yourself that this all makes sense, but what about the other 90% + that don’t have that ability?

We thought about this too. A lot. How could we achieve a more reliable debt settlement business model for the consumer that needs to settle over time? The answer was the same. We only offer to enroll accounts into our Debt Settlement service, when the funds to settle are available. It’s that exact same knob again. I’ll tell you how we accomplish this…

If a consumer can’t settle their debts right away, we offer to train them to settle their debts themselves. And, when they have the funds available to settle, we give them the option to hire us to negotiate their more challenging accounts. All of the potential exposures that premature representation brings upon the consumer are eliminated, because we don’t do it.

We teach them by…

  • Breaking down their finances to determine how much they can afford to accumulate monthly
  • Approximating how much money they will need and how long it should take them to settle their debts
  • Reviewing specifically who they owe and determine if they have any potentially legally aggressive creditors
  • Creating a debt settlement timeline, where we detail the order in which they should settle their debts and the approximation of when they will be able to do so. Example: Settle with ABC Bank at month 6 for approximately 50%, settle with XYZ Bank at month 11 for approximately 50%, and so on
  • Forming a strategy to submit offers to their creditors, by helping them figure out the best angle to take, and by creating a presentation that demonstrates the reasons why their creditors should settle with them
  • Discussing how to manage and communicate with their creditors while they’re accumulating funds
  • Teaching them what may happen to their accounts as they age and go through the collection cycle
  • Explaining how collector’s view their ability to pay, so our trainees will know how to act accordingly
  • Arming them with the information of what their creditors, collection agencies, or collection attorneys have settled for. We provide them with the lowest, the average, and the highest settlement percentages that we negotiated ourselves
  • Teaching them how to communicate and negotiate, by discussing what information to share, how to make their offer, when to make their offer, and how best to negotiate
  • And finally, by teaching them how to handle the transactions when paying their settlements, so they’ll know exactly what they need and what to do

When our trainees represent themselves, they maintain their anonymity. They’re just another account that moves through the currents of the collection cycle. Their accounts aren’t flagged or outright targeted for aggressive pursuit due to premature representation, because they aren’t represented. At least not until they have the funds available to settle, and then it’s an option at Debt Relief A La Carte.

Most of our Do-It-Yourself Debt Settlement clients are pleasantly surprised by random settlement offers that they receive. What they figure out, is that they really only need representation with the minority of their accounts, if any at all. This cost savings achieved by not having to pay a debt settlement fee, potentially enables them to settle their debts more quickly. Which further enhances their chances for success.

To make sure that our trainees achieve the highest success possible. As part of our suite of debt relief services, we make our Periodic Review service available. This gives our trainees [consumers] the option to inquire with us about their specific situation, whenever they have the need. Our trainees use this service to assist them with keeping on track, to inquire about recent communication they have had, to run their negotiations and offers by us, and to obtain our opinions and refinements to their strategies. A lot of empowerment is achieved by our trainees through this service, not just for debt settlement, but for everyday life.

We also offer a Role Playing service, where we pretend to be a bill collector, so our trainees can enhance their negotiating skills. This is a very powerful tool that helps prepare our trainees for their communication and negotiation strategies.

And then, if we offer our Debt Settlement service in the trainees state, and they have funds available to settle, we give them the option to hire us to negotiate their more challenging accounts. So, if they really need that professional help, they have the option to use it.

I’ve had a lot of fun with our DIY Debt Settlement services. It is really rewarding for me to hear my trainee, engulfed in a new found confidence when they negotiate their own settlement. It’s like watching the most beautiful thing you can imagine, become what it is.

They quickly learn that it isn’t anywhere near as daunting as they thought it would be. And, they benefit greatly by always being in the know, in regard to the status of their accounts.

If I could wish for just one thing, it we be for the general public to know that negotiating settlements is common place in the debt collection industry. Random settlement offers are generated as a matter of doing business as usual.

I want to commend the debt settlement companies that have taken the high road, and agree to only represent their clients when their funds to settle are available. I seriously applaud you, as it is an incredibly ethical move. We just offer our services a little differently, in order to give our trainees the option of minimizing their costs associated with settling their debts, so they may get out of debt as soon as possible. This is why I changed the name of my company about a year ago, to Debt Relief A La Carte. It is up to our trainees and their situations to decide just how much professional help they actually need. We just provide the outlet to make that possible.

* We were formerly known as Strauss and Associates.

So, if you were to ask me for my opinion regarding what could clean up this industry for good, it would be a law that requires consumers to have the financial capacity to settle their enrolled debt prior to being able to gain representation from a debt settlement company. It is the only way to offer debt settlement in a successfully reliable fashion. There is no reason for representation to occur prematurely. It creates on obstructionist relationship with the collection industry, that in turn, makes success more difficult for a debt settlement companies clients. It stifles growth and prosperity for everyone involved. It’s just not good.

Steve, thank you for the soap box. I appreciate it.

Jared Strauss
Debt Relief A La Carte, Inc
www.avoidbk.com

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  • Jared_Strauss

    Thanks, Fitz. The motivation behind the way we offer our services is always driven by minimizing our clients exposure, in each and every respect possible. It’s the only way to enhance success. I appreciate you indentifying the flexibility our business model offers. As you are right, it enables consumers to be able to deal with other real life challenges that may delay or postpone their pursuit in getting out of debt, since our services are designed to be used as our clients need them. I appreciate your kind words. Thanks again. 

  • Fitz

    Great article. Whether it’s premature or boutique or, as I think Charles has previously described as the need for flexibility, the biggest problem in my view is the “one size fits all” mentality. Each consumers circumstances (from qualification to completion) is simply to fluid and subject to change. You’ve taken much of that out. Bravo.

  • Jared_Strauss

    Thank you, Charles. We are a boutique. And, you are spot on with everything you said. Hopefully this information will become more widely known, so prospective debt settlement candidates can make a more informed decision.  

  • Charles

    Great article, Jared. It’s really refreshing to read a post by a debt
    settlement professional who understands that consumers can handle their
    own negotiations when properly instructed.

    I had a sense of deja-vu
    while reading your article, since you make a lot of the same points I’ve
    been writing about at ZipDebt for years. What you refer to as
    “premature representation” is what I refer to as the “footprint problem
    in debt settlement.” For exactly the reasons you outline, creditors and
    agencies have taken an adversarial stance against the industry at large and come to view the involvement of a debt settlement firm as being a hindrance rather than a benefit. When a Power-of-Attorney form is sent (or worse, a cease communication notice) to an original creditor, a negative footprint is created. In many cases, this actually short-circuits the normal collection cycle that will yield good low settlements and replaces it with early escalation to legal placements.

    Contrary to the sales hype, there is no protection afforded the consumer by participation in a formal third-party debt settlement program — just the opposite, in fact. Send a POA or C&D prematurely, and the risk of litigation is greatly increased, precisely at a time when the consumer is least able to handle the legal attack. These problems can be avoided through proper suitability analysis before accepting a client, a careful mapping of the game plan based on the specific list of accounts/creditors, and expert coaching so clients know how to navigate the collection process.

    The other point I’ll make is that smaller is better in debt settlement, meaning that smaller firms and solo operators are better able to provide the hands-on service people need. Every debt settlement case is unique and requires its own careful analysis and handling. This is why I’ve kept ZipDebt at the “boutique” level of operation, as you apparently have with your company. In my opinion, most of the negatives associated with our industry are a direct result of companies that cut corners while trying to amp up volume to massive levels.

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