The first step of the treatment is to admit you have a problem. Repeat after me slowly… When more than half the people I take money from don’t get the result that I have promised them, my program does not work like the sales training video told me it did. 

Remember to say it with a smile.

And do you see any issue with the fact that over 60% of your clients do not settle all their debt and 39% don’t settle any?

While data regarding success and failure rates for settlement when no upfront fees are charged will not be comprehensive until passage of the 3 or 4 years you suggest, I don’t mind making some predictions:

The data will be the same or worse. Why? Fees. Whether charging 15 to 25 percent of debt load upfront, or as much as 45% of savings after each settlement is completed, its the same problem. Worse really. Settlement percentages suffer (and therefore consumers suffer less savings) due to the motivation to collect the first fee, then the next fee, then the next. When fees are paid at the level most companies charge, the debt help seeking consumer is at the same place 24 months in, as they were (for the most part) when fees were charged up front.

Without the stricter qualifying guidelines suggested by Mr. Angelo, the data will be worse. Anyone want to point to companies who have publicized their strict enrollment qualifying guidelines they enacted at the same time that same company stopped taking upfront fees? Anyone? Bueller?

DMP:

There was a recent comment on this site by a consumer who said:
“I went into the
DMP.  It took off the pressure, reduced my monthly payments and reset my
interest rates.  Thankfully my salary rose again with additional
promotions.   Is it hard to make the payments…YES.  Will I be
one of the 7 or 8%  that actually succeed in a DMP YES..”

I am not sure where he got his estimate of 7 or 8 percent completing a DMP, but how terrible is that if he is right? Anyone want to say he is wrong about DMP failures? If it were not for this guys salary increase, he may have been part of his 92% failure estimate.

Most programs run 36-48 months so we haven’t seen a full cycle since the upfront ban took effect.  There were only a handful of companies that did not charge upfront fees prior to the ban so as an industry, it may be too soon to ask for the data again but I’m of the opinion that not charging upfront fees combined with stricter qualifying guidelines would yield completely different results in a post TSR world.  

If they are government backed or subsidized student loans then some really good options do exist for those.

Did Pioneer Credit Counseling say they had a specific program to assist with the student loans? It sounds like they were just making the payment.

This was excellent information.  When I finished college (1986) I enrolled int he CCCS to aid in my budgeting as I looked for full time employment.  I worked in temp positions, first.  My $50.00 payments were based on my weekly pay periods.  Total monthly payments were $200.00.  I also worked with Sallie Mae to Consolidate all of my student loans,  I chose to end my relationship with CCCS when I found that the majority of the payments were going to CCCS not my creditors.  I began to pay them $200.00 directly and paid off my credit cards in faster time.

Recently, Pioneer Credit held one my student loans which had not bee consolidated.  I worked hard to keep my part of the agreement which was $68.00 per month for a $6,000.00 defaulted loan (which floated in never, never land for a period of 17 years). Previously, I contested the loan because I had not enrolled in any programs and was on bed rest due to complications with my second pregnancy.  The promisary note signature was not my signature.  But I did not have the money to contest the legality of the loan.  So I entered into an agreement to pay it off.  The loan was placed with a special unit with Pioneer Credit, which meant I could only reach them during certain business hours.  I would make my monthly payment, call the next month to make a payment and find the the previous payment was not received.  I paid with a pre-paid credit card from Wal-Mart.  I would check the card and sure enough the money was still sitting there.  Pioneer would asked repeatedly, “to avoid this from happening again, set up an automatic draft from your checking account and we will withdraw the money from your account.  This way you do not have to worry”.  Of course I declined that offer, because in the past I authorized access to my checking account and had to closed the account to prevent further abuse by the creditor, who when my check was deposited would withdraw the entire check, leaving me with nothing to pay my rent, utilities or to get gas.  It took my bank manager to share with me what they were doing.  When I contacted the creditor about this behavior, the only words they could you were “you owe the debt anyway and since you are lying about what you can pay we can take what we see is available!”  When I closed the account I never heard from that creditor again.  Okay back to Pioneer Credit.their customer services was so bad that I had no choice but to secure a loan to pay this debt off, even though I really could not afford another loan. With all of the fees charged and after 2 years of paying $68.00 per month.  The pay off for the loan was the same amount of the loan.  The monthly payments I made barely covered their fees.  I was furious when I found this out and demanded to speak with the Head of the Business. I ended up speaking to a Manager who some how calculated a pay off of $3,800.00 which I paid and used the rest of the loan to pay on other bills.

I have paid out $500 to a debt consolidation program which claimed to assist with Student Loan negoitations.  I got absolutely nothing from that program.  Recently, I applied for assistance with a debt consolidation loan, but received a call from Fast Track Debt Relief.  The attorney?  on the call stated “that with my debt he could get me a settlement of $266.00 for everything minus my student loans.  If I agreed to the terms, I could meet with a paralegal with their company and sign the paper work in a Panera Bread, McDonalds, etc…” I told him that I needed to get all of my numbers together and do some research on the company.  When I got home I search the website and found your site which has been more then helpful to me.

Based upon your response to my question, I am interested in pay off options or bankruptcy.

Right now I’m very frustrated and angry because today I was told information that I wasn’t told about the numerous times I talked to Money Management. They told me that they always disburse payments on the 20th. I would have thought twice about signing the contract or worked out a different pay date if I had known that THEIR payment disbursement date was the same as my creditors due date. And I feel like I’m paying fees for nothing but extra stress and frustration. My contract with them was already more expensive than the minimum payments I was making. And while I’d really like to be debt-free in 5 years, I don’t know if I can handle the impossible task of keeping them in check to make sure they’re doing their job.

My only recommendation to anyone is SPEND your money wisely and don’t get into debt. These people are a waste of time and money, so far as I can tell at this point.

Right now I’m very frustrated and angry because today I was told information that I wasn’t told about the numerous times I talked to Money Management. They told me that they always disburse payments on the 20th. I would have thought twice about signing the contract or worked out a different pay date if I had known that THEIR payment disbursement date was the same as my creditors due date. And I feel like I’m paying fees for nothing but extra stress and frustration. My contract with them was already more expensive than the minimum payments I was making. And while I’d really like to be debt-free in 5 years, I don’t know if I can handle the impossible task of keeping them in check to make sure they’re doing their job.

My only recommendation to anyone is SPEND your money wisely and don’t get into debt. These people are a waste of time and money, so far as I can tell at this point.

Are You Really Ready to Get Out of Debt? Can You Handle the Truth?

Steve

Are You Really Ready to Get Out of Debt? Can You Handle the Truth?

Steve

I think you use the deceptive marketing angle and twist it with the actual process of debt settlement. What I mean is, Yes you are right. Consumers are being mislead by a lot of companies on the process. ALSO, you need to realize how many of these consumers are being explained properly, have clear agreements, and then “wait, their not paid monthly?

—> We can’t dissolve contract law here. Theres 2 sides to the coin. The 1 side where the consumer was really decepted into thinking that DS was something else. The other side wheere the consumer was explained everything but still didn’t get it.

The performance-no up front will clean it up. Companies need to make sure consumers are explained because settling 1 of 5-10 debts is not profitable. they need to make sure it is explained so they can settle 80%+ of their debts.

However, this attorney model I believe needs to go away UNLESS, in my opinion, they are being offered full legal representation. at this point, i wouldn’t want to see regulations taking away the ability for a client to receive legal representation.

I think you use the deceptive marketing angle and twist it with the actual process of debt settlement. What I mean is, Yes you are right. Consumers are being mislead by a lot of companies on the process. ALSO, you need to realize how many of these consumers are being explained properly, have clear agreements, and then “wait, their not paid monthly?

—> We can’t dissolve contract law here. Theres 2 sides to the coin. The 1 side where the consumer was really decepted into thinking that DS was something else. The other side wheere the consumer was explained everything but still didn’t get it.

The performance-no up front will clean it up. Companies need to make sure consumers are explained because settling 1 of 5-10 debts is not profitable. they need to make sure it is explained so they can settle 80%+ of their debts.

However, this attorney model I believe needs to go away UNLESS, in my opinion, they are being offered full legal representation. at this point, i wouldn’t want to see regulations taking away the ability for a client to receive legal representation.

BTW, for the record I am not against debt settlement and as I’ve said before I’ve used debt settlement successfully for consumers in the past when they’ve had the cash on hand to immediately settle.

I am also not for selling consumers a solution that is not appropriate for them based on their situation. But I wouldn’t be for bankruptcy either in a situation when a consumer has just one missed payment and has the ability to continue paying with monthly income, nor would I be for credit counseling when a consumer can’t afford the minimum monthly payment and there is no expectation they would be able to make the payment over the life of the four year plan.

We’ve just lived through a long period of debt settlement misselling and that’s the part that needs to be cleaned up.

BTW, for the record I am not against debt settlement and as I’ve said before I’ve used debt settlement successfully for consumers in the past when they’ve had the cash on hand to immediately settle.

I am also not for selling consumers a solution that is not appropriate for them based on their situation. But I wouldn’t be for bankruptcy either in a situation when a consumer has just one missed payment and has the ability to continue paying with monthly income, nor would I be for credit counseling when a consumer can’t afford the minimum monthly payment and there is no expectation they would be able to make the payment over the life of the four year plan.

We’ve just lived through a long period of debt settlement misselling and that’s the part that needs to be cleaned up.

Very convenient to group Debt Settlement people & Attorneys in the same group. Of course it helps your cause, but you know what? There isn’t any of the consequences of bankruptcy on your site? Must of forgot that. Now you can reply to this post and minimality the consequences. (let me make people reading this aware.. I fully understand the need for bankruptcy and its purpose in cleaning out the system of bad debt and assisting people who got over the head or extreme hardship. But I need to point these people out who don’t show both sides of the coin)

Also, if your web guy has any skills this site puts “NOFOLLOW Tags” so putting your article here will only steal the traffic from Mr Rhodes.. you won’t get link credit ;)

Very convenient to group Debt Settlement people & Attorneys in the same group. Of course it helps your cause, but you know what? There isn’t any of the consequences of bankruptcy on your site? Must of forgot that. Now you can reply to this post and minimality the consequences. (let me make people reading this aware.. I fully understand the need for bankruptcy and its purpose in cleaning out the system of bad debt and assisting people who got over the head or extreme hardship. But I need to point these people out who don’t show both sides of the coin)

Also, if your web guy has any skills this site puts “NOFOLLOW Tags” so putting your article here will only steal the traffic from Mr Rhodes.. you won’t get link credit ;)

If anyone is familiar with SEO, you will notice who biased Mr. Rhode’s is against debt settlement. Example, the title of his article’s for debt settlement companies are “DEBT SETTLEMENT COMPANY NAME, SCAM-COMPLAINT-PRAISE”

If you know anything about google, this will first show up on google as “DEBT SETTLEMENT COMPANY NAME SCAM”

Steve, I’m pretty close to using the few free time I have to use my skills on the web to debunk all the spin you have and make sure people finding your site also find the other side of the story you don’t present.

If anyone is familiar with SEO, you will notice who biased Mr. Rhode’s is against debt settlement. Example, the title of his article’s for debt settlement companies are “DEBT SETTLEMENT COMPANY NAME, SCAM-COMPLAINT-PRAISE”

If you know anything about google, this will first show up on google as “DEBT SETTLEMENT COMPANY NAME SCAM”

Steve, I’m pretty close to using the few free time I have to use my skills on the web to debunk all the spin you have and make sure people finding your site also find the other side of the story you don’t present.

I have linked your article in my post, “Debt Settlement is a Rip-Off,” available here: http://www.lee-legal.com/personal-finance/debt-settlement-ripoff

I previously made an official request for that information from the courts but, well, the wheels of government move slowly. Reports back from attorneys in the field did not report big numbers for that but it does happen at times.

Steve

I enjoyed reading your articcle on The Truth About The Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. I was wondering, however, if you were able to find out how many Chapter 13 Bankruptices actually convert over to Chapter 7 Bankruptices. Is there any public or documented information of such? I am curious as to the number and the percentage of these conversions.

That said, I agree with what Steve Rhode said above completely. You can retain a bankruptcy attorney for alot less than you can do a DMP.

Furthermore, the bankruptcy would zero out your unsecured debt immediately, and allow you to begin rebuilding your credit about 4 months after filing (about the average time for a Ch. 7 bankruptcy.)

I’m not a fan of DMPs because they have a terrible failure rate, and in my opinion they kill your credit every bit as dead as a Ch.7. The one bright spot with a DMP is that their lasting effect on your credit report may be slightly shorter than that of a Ch. 7 bankruptcy. (But not nearly as much as you might think.)

All that being said, I highly recommend Dave Ramsey and his Financial Peace University. (http://www.daveramsey.com) I would advise you to look into Dave’s offerings. He hates bankruptcy and is highly successful at helping people recover from financial disasters.

God bless you. If you need assistance, you’re welcome to write back to me. I’m only licensed to practice law in Oklahoma (and I’m guessing you’re not in Oklahoma). But I’m happy to give you the benefit of my experience, if not legal advice.

Ben Callicoat
.-= fbc´s last blog ..How To Go Broke and End Up in Bankruptcy Court (or "If Tomorrow Never Comes") =-.

As far as the cost, a case can easily be made that bankruptcy is overall less expensive than credit counseling, where you pay back all of your debt over a long period of time. With bankruptcy, while there is an upfront cost for the attorney, the interest rate on all cards goes to 0% and while your credit would have taken a hit it could have been easily rebuilt in the same time it will take to complete a credit counseling program. Hopefully you’ve been able to build up a good emergency fund during the time you’ve been making your DMP payments.

Steve

As a single mother of four children, now responsible for two people’s debts on my one income which isn’t a lucrative one by any means, I considered a Credit Counseling Service and bankruptcy. I was concerned about the costs of retaining a bankruptcy attorney when I was still making payments to my divorce attorney. I am committed to paying my debts, and feeding my children. I decided to go on a debt management plan through a local non-profit CCCS and this allowed me to reduce the interest payments and the monthly payments to an amount that I could afford. Two years later, I have cut everything to the bone, worked on increasing my income as best I can, paid off and whittled down some debts that weren’t included in the DMP and life is looking a lot better. Everything I spend now is on a cash only basis. I have about three more years to go. In about six months, my car will be paid off and that will provide some added relief.

I always understood that a DMP was the better way to go over Bankruptcy because of the longer term effects to credit scores and ability to get credit (I do hope to sell my home and purchase a different one eventually) down the road. Am I misinformed?
.-= thewildmind´s last blog ..Writer’s Block =-.

I hear you man. I have made similar arguments in the past to MBNA and Chase when I ran a credit counseling group. They wanted to hold collection ratios in my face and rates of return and I made the point that our services had a deeper impact. My analogy was that if a church is full of people on a Sunday and the preacher gives a great sermon, how do we measure how close to God those attendees were as a result of the lessons taught and learned? There are some things that are just immeasurable.

So what can we measure to compare results? People need a scorecard to use to compare. If we can measure the effectiveness of medical interventions, certainly we can measure the effectiveness of debt interventions. Medical interventions might result in better eating habits, more awareness of nutrition and more minutes spent in exercise. But the end measurement is going to be how many people lived and died as a result of receiving X treatment modality. More people lived, that’s a success.

The typical response to an article like this by each camp is going to be defense. The walls will be raised and the troops rallied to defend the position. It will be the rare member that will actually fall into introspection and take a good look at the realty of the landscape. You sound like you might one of those people.

Today I adopt the position that the majority of people that move towards credit counseling are not there to proactively learn money management or budgeting skills. Instead they are reacting to an immediate issue, the debt problem, or are stimulated by delinquency, looming financial disaster and collection calls.

Can credit counseling by a good a ground for learning new money skills, absolutely. But I think modern credit counseling does not operate in the best interest of the consumer that is struggling to make ends meet, has fallen behind or is facing stressful and uncertain financial times. This is simply because while budgeting skills and money management lessons are important, the immediate goal is how can be be rescued from the financial tsunami they are facing right now. And as long as debt management plans are dictated by creditors with little real reduction in monthly payments or DMPs are not contractually binding on all creditors there will be serious issues that need to be talked about and fixed. I also think credit counseling needs to be released from their golden bonds with the creditors and allowed to exist in an environment where they can be the champions of consumers, speak out loudly about bad creditor behavior and not be silently afraid of offending the very entities that provide them funding. But that’s an issue for another discussion.

There will be some success stories, but there are also some very serious deficiencies that need to be addressed and made better.

Steve

This is a great article for starting a discussion of something that has plagued the debt relief industry for years. But, I do want to comment on a definition of “success”. You defined Debt Settlement’s success as “the elimination of all debts through debt settlement, without getting sued”; this definition seems valid. Bankruptcy has a similar clear cut definition: fully discharging debts through bankruptcy. I have argued in front of the National Conference of Commissioners on Uniform State Laws (NCCUSL) drafting committee on the Uniform Debt-Management Services Act (UDMSA) that the definition of success for Credit Counseling and Debt Management Plans is not simply paying off all the client’s debts in a Debt Management Plan, because the plan itself is not the program, the program includes credit counseling.

The committee, because of pressure from consumer groups, toyed with the idea of adding a success rate to the disclosures, but because of comments on the success rate, my argument included, they decided that the rates would be difficult to calculate, and may not be easily comparable.

A debt management plans is just a part of credit counseling, it is a tool or a crutch for those clients that are facing financial hardship, and just one of the options that credit counselors offer every day. The object of credit counseling is educate and counsel the client on how to handle their finances, how to create a budget and live within it, and how to meet their financial obligations. A credit counselor’s job first and foremost is to offer education and options. A failure of credit counseling would be for the client not to be able to handle the debt without the need of a hardship program.

Many credit counselors view the debt management program as a crutch and the credit counseling as the rehab. The crutch (a debt management program) is needed to get the client up and mobile, the rehab (the counseling) allows the client to walk on their own. I tell my clients that if they are still paying off their debt through the debt management program in the 4-5 years most debt management programs run, then I have not done my job of educating them to handle their financial obligations on their own.

Is it not a success for a client to leave a debt management program because they have reigned in their debt and have learned through counseling to handle their debt on their own?

Is it not a success for a client to leave a debt management program to refinance their debt at a credit union because they have learned through counseling to pay their debts on time and have improved their credit score so they can be approved for a low cost personal loan?

Is it not a success for a client to leave a debt management program because they have learned through counseling how to better budget their finances and have realigned their spending priorities?

I am just suggesting that “success” in Credit Counseling and Debt Management Plans may not be as clear cut as the failure rate of the Debt Management Plan, because it discounts the primary focus of the Credit Counseling efforts.

1. Send written offers to the lenders starting at XX% of each debt. Do not mention any lump-sum payment at the moment. Offers should contain: suspended or lower interest rates; elimination of any recent late or other charges.

2. Contact three debt settlement firms, explain the situation and request a quote for their services. Note that most debt settlement folks are now on the Persolvo system and that can present a problem for you.

Without a clearer and more detailed picture of your situation targeted advice is difficult. I would be happy to help.

you are correct that all financial problems are cured by an increase in income, a reduction in expenses, or a combination of both. However many people in troublesome money trouble have already reduced expenses to the bone and are not in a position to increase income. This leaves the only legal debt reduction tool as bankruptcy.

As far as cloaking goes, they really are not. The links ate setup that if the underlying link changes that it can be changed in one place instead of all over the site. It was my lazy way to deal with it. If you have not had a chance to read the site terms where I openly talk about the links, you might want to if that interests you.

Thanks for the hug back. It’s appreciated.

Steve

Bankruptcy is a way to blow up the moldy house, sure, but ultimately the finest debt solution is to earn more money and waste less, isn’t it?

Big Hug.

The first client was a pharmacist who paid $1600 a month for 10 months. Yes, $16000. And he, of course, got sued.

Same general story with the next two clients.
.-= fbc´s last blog ..Real Life, Real Bankruptcy: Can I Keep My Car? =-.

First, we take full responsiblity for the CC debts we’ve amassed and owe, appx $45k. Living beyond our means, disposing of disposable income willy nilly, etc. My husband was a mortgage industry lay off and unable to find work during 2008; he did, however finish his Economics degree and find employment; which is a 20% lower wage. We went to a credit counseling company, in person, and they weren’t able to reduce our monthly payments to an affordable amount. It seems as tho they were more focused on the time period to pay the creditors than what the debtors could reasonably afford. I’m sure we wouldn’t be counted as a failure on their books, or counted at all as we signed nothing, nor did they follow-up with us as our counselor said she would. We have begun the bankruptcy process. We won’t argue with your “it’s a cop-out” or “easy way out (not been easy thus far)” finger-pointing, but for us, it’s not worth arguing about anymore; it was not a decision made lightly nor desired. We tried working with the creditors directly and a couple (Citi and Chase) worked out internal hardship payments for 12 months, but the others would not (Bank of America, AmEx, other Chase). We have reduced our “living” expenses to the bare minimum of two working parents – 2 cars in Orlando, insurance, mortgage, internet, phone (we chose cell over home, it was cheaper!, no texting, no messaging, no media, just calling), we’ve sold what we don’t need to live, etc. My last gripe, CC companies have to take a little responsiblity again. Lowering limits, raising interest, and don’t get me started on fees in anticipation of “having to serve their customers” laws going into effect is exaserbating the situation.

Personally, we’ve learned our lesson and have two years to get back on our feet to ensure this never happens to us again. We aren’t moving, and we aren’t buying anything with anything other than cash; which is what we should have been better at doing for the last 10 years. More over, I applaud those of you who have never, and god willing, will never, go thru this.

For the record, I did not say “all CCCS and Settlement solutions are a scam”. In fact I could not find that quote on the page. Just wanted to clarify.

If we are talking about debt management solutions problems. I think many of these issues could be addressed with transparency, public reporting, regulation and to make the client the one that pays for the service, instead of the creditors with fairshare. We need to end this dual agency relationship to make sure the consumer comes first.

Steve

Consumers in deep debt are in debt for a reason. Outside of severe personal injury they have neglected their financial responsibilities. It’s only natural that a large % of them will also fail out of any debt relief program for the same reasons, regardless of the quality or type of service being provided.

Consumers in debt often love to blame the service and not look at their own failings. When they don’t abide by the terms of the progam and the debt situation is not resolved they drop the program and blame the debt relief service.

Consumers hear what they want to hear.
Ask any debt relief consultant. You can consult a person all day long telling them of the risks, explaining the specific things they MUST do to be successful. But all they hear is, you’ll be debt free, you don’t have to do a thing.
They do not read the contracts, yet sign off on the terms. 3 months later they drop and blame the company for being a scam.

With that said, the # of Debt Relief services have grown exponentially over the past 5 years. Negotiation services have increased from 20 national companies in 2004, to well over 400 today. Many of these companies are new entries who came from the mortgage marketplace. With increased competition, sales pressure and the potential of lucrative returns some sales floors start to tell consumers what they want to hear.

Greedy marketers are distorting the truth.
Online; Claims of 80% reductions are common, claims to stop all collections calls, lower interest rates to 0 and more. Consumers can get and do get confused. Unfortunately, the marketing produces a lot of revenue and the practice continues. Worse still is that their onine competition loses revenue for telling the truth.. I mean who is going to respond to an ad with a 40% reduction when the ad next to them states 80% with a guarantee? Google, Yahoo and MSN will not get involved with false advertising claims.

Credit counseling fees and thus profits are being tightly regulated so they must operate on a volume model, this puts pressure on them to soften the pitch and make more sales.

So there you have it, what is the largest factor in a low success percentage for debt relief services in general? Lack of clear regulation on marketing and licensing. Too strict of regulation on fees for credit counseling/management making the profit model financially impossible. A society of debtors all too willing to accept a feel good pitch from new unscrupulous companies and decline the services from companies who tell them the hard cold truth.