The debt settlement industry is exploding. Some say that many of these new companies are being run by failed mortgage brokers that want to get into the business. I don’t know about that but certainly there is a wave of opportunism evidenced by the exploding debt settlement industry.
The sad thing about this is that as the market gets flooded by newbies, opportunists and people who simply don’t know what they are doing, the industry will get a massive black eye and I predict, either a crackdown or heavy regulation.
A very good article in the New York Times today brought some facts to light that I had suspected but was unaware of. In a lawsuit by the State of Texas against a debt settlement firm, it is asserted:
The suit says the company misrepresents its success rate, noting that the company’s own data “show that over 80 percent of the debts enrolled in the program do not settle.” Those debts that are settled, the suit says, are for higher amounts than the promised 40 cents on the dollar. Source: NYT
Additionally, other problems exist in the debt settlement industry that are not discussed often.
- Heavy front loading of customer fees from monies paid in.
- Lack of disclosure about tax implications of settling.
- Debt collectors latter pursuing debt that was believed to be forgiven.
- Continued collection activity while money is saved to settle with.
- Clients enrolled in debt settlement monthly payment programs getting sued by creditors for lack of payment to creditors.
Now, again, for the record, I have seen some amazing results with lump-sum debt settlements when the consumer has the funds on hand to settle the debt right now. That is a process that takes days or weeks and not years as in the monthly payment approach.
I’m afraid that the respectable firms in the debt settlement industry, and you know who you are, are going to get tarred with the same broad brush that credit counseling groups did in the crackdown of that industry.
The most disturbing aspect of the inevitable crackdown on the debt settlement industry is that it is yet another effort that will take options away from consumers that want to resolve their debts. It would be a welcome relief to actually see a new option or regulated tool that assists consumer to resolve their debt in a fair, reasonable and sustained way, other than creditor sponsored credit counseling. No new sanctioned or regulated tools have been brought forward in fifty years.
In a perfect world, the debt settlement would race towards government regulation of the debt settlement industry to provide a legal and recognized framework in which to operate that independently represents consumers, provides transparency, and operates on a united set of operating rules.
I doubt that will happen.
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BTW: I am told that the largest debt settlement companies in operation today are:
- Credit Solutions
- US Debt Settlement
- Freedom Financial
- Debt XS
- Century Negotiations
- Credit Answers
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Hi
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Camron sareja
Here are a few things that a consumer should look for in dealing when a “new” debt settlement company. We all know the BBB has flaws, so how do we find some who is really trustworthy?
– Is your first point of contact a certified debt specialist, or certified debt arbitrator? If no, I would immediately look into working with somebody else.
– What industry experience do they have? / Have they worked in credit collections and how long? To really understand how debt settlement will work, a background in the collections game will provide accurate advice.
– How much debt settlement experience does the frontline consultant have? Remember many new companies create ways to improve the old process, bringing new life to the methods that don’t work.
– How transparent is the company you are dealing with? Is it easy for you to find out who the owner is, where the company is located? Do they meet with you face to face?
Those are just a few things I would like to add to this page. Many people could get the same offers from their creditors, if they know exactly what to say and when to say it; However many people lack the resources and knowledge about the whole entire process- this means you should leave it to a professional who has your best interests to guide you along safely.
I too am very impressed by what this website has to offer. I would like to take the time to inform everyone or remind in most cases that the BBB is a company and it can be bought into just like a franchise and in the state of Massachusetts it made the mistake of making one of the 1st debt settlement companies in the state its premier member “offering their company ad when you called the BBB as the hold greeting” I say they made the mistake, becuase it was clear that the money which was being funneled to the MA. BBB office helped skyrocket a very shady company to incredible growth and eventually the private BBB office learned of their mistake only to revoke this companies membership and not allow any more debt settlement companies period to become accredited BBB members. The debt sif company i’m speaking of was shut down by the Federal Government.
Hi Steve!
First of all, you have a great website and tremendous value in what you are providing. I’m happy to have reviewed some of your key content and find you are right on the money. It’s VERY RARE to find unbiased information, educational content and advice online about how to get out of debt. You are a role model for such excellent content. It is obvious your intention is to help others.
I’m also impressed by your charitable support of micro credit – such a great thing in this world! I was inspired by the work of Bangladeshi economist Muhammad Yunus who pioneered “micro credit” with his Grameen Bank concept in India and won the Nobel Peace Prize for it in 2006. I was again inspired today when I saw your support of Kiva. Bravo!
That said, it also seems we have a lot in common. We just recently connected on twitter. You have the most similar twitter name to my own that I’ve seen yet… you: twitter.com/GetOutOfDebtGuy & me: twitter.com/DebtGOTOGuy – haha… that’s great!
In this article you make a great point about the legitimacy of debt settlement as an option, as well as the downside to the growth of the industry due to bad operators in the lurch. It’s true, new debt settlement shops are springing up all over the place, and many are in fact former mortgage people who could no longer make money in subprime. Sadly, there are far too many shady, unethical or simply ignorant & desperate people enrolling consumers into ba debt settlement programs that are destined to fail. We will see the debt settlement bubble burst as well, and hopefully it will lead to a cleaner industry and less financial ruin for people already struggling with hardship.
How can consumers take advantage of debt settlement but avoid bad debt settlement companies?
Here are three quick tips to help people AVOID BAD DEBT SETTLEMENT COMPANIES. Just make sure the company you choose:
1) Has been in business 5yrs+
2) Has a clean BBB Report (Free of excessive complaints)
3) Requires current creditor statements for quotes
Let me explain…
#1) Make sure the company has been in business for over 5 year. If 90% of new businesses fail in the first five years, then why would you trust your financial future to a start up? F\Also, following this one single rule you will avoid the fly-by-nights and new, unproven companies that have littered the debt settlement landscape.
#2) Check the company’s BBB report FOR COMPLAINTS. Having zero complaints is best, but for large companies it is unreasonable to expect zero complaints, as it becomes impossible to please everyone over time at a high volume. A few may be OK, if they are resolved. Watch out for EXCESSIVE or UNRESOLVED complaints.
Steve, you mentioned Credit Solutions above. To my knowledge, they are the largest debt settlement company in existence, however, they are also one of the most shady, using high-pressure sales tactics and quoting very low, unrealistic estimates to consumers. Look at their BBB Report… last time I checked they had over 1,500 complaints in the past 36 months. This is ridiculous and a sure sign for consumers to RUN from Credit Solutions.
* Note on BBB Membership & Rating: The BBB itself has become corrupt. I wish they did a better job helping consumers distinguish between good Debt Settlement companies and bad ones, but they are doing a very poor job. The give better ratings to members than non-members when non-members have far less complaints and a better track record, because they collect fees on memberships. They have also begun revoking membership to debt settlement companies across the country, giving them an automatic “D” or “F” rating due to concerns with the industry (thanks again to the likes of Credit Solutions). This means a company like Credit Solutions with an insane amount of complaints has the same rating as other companies with little or no complaints over an even longer period of time. So BBB membership and rating are useless to consumers to tell a good company from the bad. REMEMBER: Just look at years in business and number of complaints.
#3) Statements must be required for accurate program estimates. Good debt settlement companies have an actual back-end set up to settle their clients debts over time, and they have strict underwriting departments. These departments require pre-approval of programs based on copies of current creditor statements for all accounts included in the program. This is because there are far too many details and variables to account for when estimating program costs and time frames to ensure a high rate of success, and these details are only found on current statements… such as creditor name, current balances, past due amounts, cash advance / balance transfer balances. Companies intent to be in business for the long term will require statements and enforce strict underwriting. Companies who are a flash in the pan with intention of collecting as many fees as possible before vanishing do not have such infrastructure or requirements. Beware.
So folks, remember, only work with settlement companies who:
1) Have been in business 5yrs+
2) Have a clean BBB Report (Free of excessive complaints)
3) Require current creditor statements for quotes
Hope this helps!
Oh, and remember the BIG IDEA:
STOP paying interest and START earning interest ASAP!
Here To Be An Asset To You,
Jesse Niesen
DebtGOTOGuy.com
Debt Relief Guide Online
BTW – US Debt Settlement looks like the first debt settlement company to go public, announcing in a press release on February 11th it had plans for an IPO in March. I’m awaiting an update on their status.
Jesse,
Thanks for taking the time for the long response. You’ve supplied some great information here.
Steve
The frenzy in settlement is eerily similar to that of the subprime mortgage business a few years ago. I agree…legislation is next. As you point out Steve, the problem is there really is no other model than credit counseling or bankruptcy. Hopefully the few reputable players will still be able to help consumers. It’s going to be ugly.
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