I have continuously written articles and spoken out in interviews about the practice of “selling” debt settlement. Selling someone into debt settlement is the number one reason the industry has been tarred and feathered in the media. The over hyped selling by profiteers and sales groups has resulted in enforcement actions by many states, and new FTC rules, in order to curb abuse.

DEBT SETTLEMENT SHOULD NOT BE SOLD!

Steve Rhode, on his blog, getoutofdebt.org, regularly covers the debt relief industry and its foul ups, bleeps and plunderers. He has recently covered several lawsuits filed by employees against the firms they sell/sold debt settlement for. The lawsuits allege failure to pay wages related to work performed. Steve has posted about lawsuits against: Lloyd Ward and Associates, ABC Debt Relief, The Debt Answer, Debt RX USA, Silverleaf Debt Solutions, CreditAnswers, and Credit Solutions of America. Key assertions in these lawsuits provide a clear view into the sales culture at some of these companies. I will focus on Steve’s post about the employee suit against Credit Solutions. Credit Solutions are also the target of multiple state legal actions.

From Steve’s post where he excerpts from the court record (my comments are in bold):

For at least three years prior to filing of this complaint and continuing (hereinafter “Liability Period”), CSA had a policy and practice of not correctly compensating its debt consultants for work performed for the benefit of CSA over and above forty (40) hours per week, to wit: virtually all debt consultants received a $2,000 forgivable draw their first 90 days of employment and a non forgivable draw of $2,000 per month thereafter. Debt consultants qualified debtors for debt settlement plans of Defendant by verifying the debtor possessed at least $10,000 in debt. Next debt consultants analyzed each creditor comprising the $10,000 is owed at least $600 and there are contracts in place between the creditor and CSA. The debt consultant sets up a CSA account for each creditor. Lastly, the debt consultant verified the debtor’s bank accounts and assisted the debtor in picking a payment plan. Once a plan was chosen the debt consultant, using CSA guidelines, would set up a monthly draft on the debtor’s bank account whereby CSA would obtain its fee and moneys to satisfy the debtor’s creditors. Eighty-five percent (85%) of CSA’s fee is collected from debtors’ accounts within the first 90 days. Debt consultants received a fee from the first monthly draft which was a percentage determined on the total volume of draft’s occurring monthly attributable to that debt consultant.

Here we learn that “debt consultants” are what I would more correctly define as sales people. The way this alleged fact is laid out would actually describe more of an order taker. What do they actually do by way of a consultation? It appears they just hit the immediate qualifiers, and then help you pick a payment option that will work for you. There is an obvious motivation for “picking” a payment that you will agree to. That is how they get paid! They have to do it though (more on this below).

Debt consultants were required to work a minimum of 12 hours per day, but were expected to work as many hours as necessary to reach assigned sales goals. Debt consultants regularly worked 14-16 hours a day and CSA provided debt consultants a room to nap and sleep when necessary to reach company goals.

Imagine the pressure to hit sales goals. In the current job market, these sales people HAD to perform to keep the job. They HAD to hit sales goals even if it meant sleeping at HQ to do it! No pressure, right?

Debt consultants were not provided a rest or lunch break, but instead, CSA served debt consultants “cup of noodles” for lunch so they would not have to leave their desk and could continuing selling the debt settlement services.

This allegation is one of the most descriptive of the debt settlement sales culture I have ever seen. Why not just put a shackle from the desk to the ankle of the sales person? Were there bed pans nearby?

Debt consultants worked six (6) days a week.

Ever see Ben Affleck in the movie “Boiler Room”? “ALWAYS BE CLOSING” – The sale that is.

As stated above, debt consultants do not receive overtime for hours worked over 40 in any week.

And why should they? You think cups of noodles are free?

CSA’s revised compensation/bonus plan containing an overtime component does not correctly calculate debt consultants’ regular rate of pay for purposes of calculating overtime; i.e. commissions paid on top of consultants’ hourly rate are not included in their regular rate of pay. – Source

Other than the outright lies that are told, there is no single more frustrating fact about the selling of a debt settlement service than the pick a payment plan approach. It is sold that way because it has to be. A consumer who is struggling to pay their creditors the required monthly minimum is focused on the dollar amount they cannot come up with. When a debt settlement sales person suggests all you need is to establish a monthly dollar figure that you can do, the hook is set!

Imagine if the sales people at Credit Solutions actually shared the TRUTH of the matter with you. If they told you that in order to be successful with settling your delinquent accounts, you are in a race. You have to come up with the money to fund offers as fast as possible. You would not feel the sigh of relief that is purposefully designed into the sales approach by the majority of people selling debt settlement.  Instead, your heart would palpitate. You would know that debt settlement is a tough choice, not an easy one. You would have a much clearer idea if debt settlement is even right for you. The sales person for CSA would not close as many sales. Do you think they would ever get to go home?

Don’t consult with a sales person offering debt relief!

If you are asked what you can come up with each month to put toward settlement, or someone “helps” you come up with a figure they are confident you will bite on, you are talking to someone offering “pick-a-pay”. Pick-a-Pay is a suitability test that everyone will pass. Using this approach means virtually any one breathing will qualify for debt settlement. That is, and has been, absurd (absurdly profitable that is).

Look to speak with someone who actually works with consumers and their creditors/collectors on a daily basis. If they have any experience and are what I would consider a responsible service provider, they will TELL you the amount of money you will need to come up with, and how quickly, in order to SUCCEED with settlement in your particular situation. Armed with this knowledge, you will then be able to evaluate whether or not filing bankruptcy would be the better choice.

You can speak with just such an expert by scheduling a consultation with a CRN negotiator. All CRN consults are conducted by people who, every day, actually settle debt or provide detailed information to CRN members on how to settle their own. There is no one more prepared to provide you the necessary details about how this approach will apply to your unique set of circumstances.

For more on how debt settlement is inappropriately SOLD, read:

• Dude Meets Debt Wall
• Shocking Eye Witness Debt Settlement Report
• Debt Settlement Marketing: The Gist, The Juice, and the Lies

Having worked with consumers who are struggling with debt in one form or another for many years, I have always endeavored to compile informative resources geared towards a better educated consumer. Most resources and professional assistance available to consumers are often ones that have a bias due to self promotion. Someone or some source that has something to sell you is generally going to tip the scale in their favor and is prone to “talking their book”.

In the debt relief industry, finding a reliable and affordable source of comprehensive information about all of your options that is unbiased and not motivated by selling you something is becoming increasingly difficult to find.

This post is about “talking someone else’s book”! In its seventh printing no less!

The #1 resource I could possibly recommend to a consumer struggling financially and who is concerned with being fully informed about all of their options to deal with crushing debt is “A Guide to Surviving Debt”.  This book has critical information EVERY consumer will want to evaluate if they are struggling to find the best solution for themselves and their family in tough financial times.

This book will thoroughly deliver reliable information that you can use to determine your best path for getting out of debt, with no concern for whether the information is slanted toward a solution other than the one that is best suited for YOU.

Let me put it this way:

Get this book, read it cover to cover, and you will know more than most of the self-proclaimed experts offering debt relief advice or products.

Surviving Debt tells consumers, their counselors, and lawyers what they need to know about:

• dealing with debt collectors
• which debts to pay first
• saving your home from foreclosure
• your credit report
• credit card debt
• student loans
• when to refinance your car loan
• income tax collections
• how to find effective credit counseling agencies
• special rights for military service members
• your bankruptcy rights
• much more

“A Guide to Surviving Debt” is published and available from the National Consumer Law Center (NCLC). NCLC has a dedicated and successful history of championing consumer rights that spans decades!

If you are struggling financially or work with people who are, you owe it to yourself or those you work with to review this number one go-to resource!

Michael Bovee
CRN – President

Settlement with creditors is a great way to deal with debt when you are unable to maintain consistent payments. It is however, not a cake walk, though many in my industry will sell it as such.

This post was inspired by a consult I did this morning with a gentleman in Pennsylvania looking at settlement as an approach to dealing with his unmanageable debt. He wondered onto our website while searching out his options, after having already consulted with another company in the industry.

His unsecured debt totaled $22,000, spread out over 7 accounts. His minimum payments are just over $900.00 a month. His interest rates on most of the accounts are over 20%. That is what’s killing him. He would be able to meet minimums, but for the higher interest, and likely be very successful using an aggressive debt rollup, or debt snowball strategy, to get out of debt quickly and unscathed. His plight, when outlined to creditors, has thus far resulted in “Dude meets wall”.

The company he consulted with prior to me outlined a 36 month program where he could pay into an account roughly 300.00 for 36 months and poof, his debt is gone. Never mind that $3300 of that money set aside over that time will go to the settlement companies fees, I’ll get to that in a moment. The sales person with whom he consulted is selling rainbows and unicorns for a commission. The 36 month plan for his situation is ridiculous for some of the following reasons.

Two of the accounts we discussed have balances of about $1000.00 and another one for $1500.00. Enrolling these accounts in a plan like this, unless they are the first ones settled (even then not advisable, unless left with no choice) is futile and silly. The math doesn’t work. Optimum balance reduction through settlement only happens when you are delinquent, often very delinquent (5 months or more). When you stop paying, default interest rates of 29-32% will be applied, late payments will be assessed, all of which could result, in some cases, in over limit fees being tacked on. Depending on when settlement is reached the amount of the debt could now be double. Can the debt be settled? Absolutely, but using 50% savings as an example, what did you actually save? Nothing, or close enough to nothing to prove that the math doesn’t work.

What if we take these 3 smaller accounts out of the equation? We are now working on $18,000. By aggressively saving and setting aside every penny, this family could be out of debt in less than 12 months and limit to near nonexistent, the risk of being sued on unpaid debt.

Now, I was completely upfront with this consumer about the way I saw his situation and perhaps he appreciates the candor and becomes a member. Perhaps the other consult he had sounded more appealing, with its 36 months, low (too low) payment to his savings for settlement and easier sounding approach. He will pay the typical fee in this industry, which by their very nature is harmful to the settlement process. The sales person will make his commission (some cases I have seen, commissions are in excess of 70% of client fee) for selling rainbows and unicorns.

He may ultimately be out of debt in 36 months, but it will have been a very long 36 months, and he will have paid too much, experienced too much grief, may be sued on one or more accounts and may miss out on strategies that could have been beneficial to recover his credit standing much faster (this is whole different topic for another post).

Moral to this post: Don’t buy into rainbows and unicorns unless you are into paying a salesman’s bills when you can’t afford your own. The settlement industries frontline is, for the most part, populated by sales people motivated by commissions. Rarely do you find a place where you can consult with, and talk to an experienced debt specialist on first contact, prior to forking over any fees and whose motivation is your success, not your money.

If you have hit the debt wall and want to learn about all of your debt management options, including debt settlement, visit Consumer Recovery Network. While you’re there, learn about becoming a member of Consumer Recovery Network (CRN), with no risk to you, and find out if you should pursue debt negotiation.

By: Michael Bovee
CRN President

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In a recent blog post written by Diane Stafford with the Kansas City Star entitled: Bankruptcy filing thwarts re-employment, Stafford highlights a key reason why consumers who can qualify for a Chapter 7 liquidation of debt bankruptcy should research ways to avoid it, if at all possible.

One of the primary benefits of filing for Chapter 7 bankruptcy is that your unsecured debt, like credit card debt, gets discharged or wiped out, which gives you the financial fresh start you need if you are strapped with too much debt. However, as Stafford points out, not only will your bankruptcy be part of the public record and noted in your credit report for 10 years, but in today’s job market having that information in your credit file can make it much more difficult to find a well-paying job. That’s because there is a lot more competition for good jobs and so many employers are using other criteria besides an applicant’s resume and references to help them decide who is the “best” person for the position they want to fill. In many instances, one of those criteria is whether an applicant has filed for bankruptcy. The theory is that if an applicant can’t manage her own money, then she probably has bad judgment and would not make a good employee. Of course, as Stafford points out, this attitude does not take into account why an applicant filed for bankruptcy. For example, the applicant may have an ex-spouse who is not paying her the child support she is legally entitled to or the applicant’s health insurer is refusing to pay many of the medical bills associated with his wife’s serious illness.

Therefore, professionals who have been downsized or are concerned that they may lose their jobs should recognize how easy it is to hit the debt wall when they are out of work and should take aggressive steps to address their debt. Although filing for bankruptcy is an option to consider, they should also consider other alternatives, like debt negotiation. Debt negotiation has proven to be an effective option for credit relief and can prevent a bankruptcy from appearing on your credit report.

Debt negotiation involves contacting your creditors, such as the banks that issued you credit cards, to try to reach a compromise with them regarding how much money you’ll have to pay to pay off your accounts. Your goal during your negotiations is to get each of your creditors to agree to take less than the outstanding balance that you owe and for the amounts that that they agree to accept to be amounts you can afford. These negotiations are typically predicated on your having missed several consecutive payments on your accounts and on your ability to establish that a hardship — like a job loss — has made it impossible for you to pay your outstanding balances.

Until recently, large creditors, especially banks that issue credit cards, have had long-standing policies regarding when they will offer a settlement to a consumer and when they will consider a settlement that a consumer offers to them. Now however, given the current state of our economy, the troubles within the banking sector, the financial industry’s new focus on risk aversion, and increases in account charge off percentages, many banks have not only become more willing to settle credit card debts, but they are also willing to settle for less money than they would have agreed to in the past. This is good news for debt stressed consumers.

In her blog, Stafford mentions the plight of one professional who might have been able to avoid bankruptcy if he had pursued debt settlement after he lost his job. She writes: “I heard from a professional who lost his job in a March 2008 downsizing at Sprint and began a so-far fruitless job search. His severance ran out, he and his wife depleted three 401(k) savings accounts and used up other savings. They pinched all the pennies they could and are trying to keep their home through a Fannie Mae Loan Modification program.”

The plight of that individual sounds very similar to stories I hear all too often. After losing a job, or experiencing a cut in pay, consumers are optimistic that things will work out for them and so while they are looking for work, they use up their savings and draw down the money in their 401(k)s so they can pay their living expenses and their debts. However, once their money runs out and they are still jobless, many of these consumers end up in bankruptcy. Although I am not criticizing the optimism of these consumers — they need it to help them get through the tough times ahead — I am suggesting that many of them might have made better use of the money in their savings and retirement accounts by using it to settle with their creditors. That way they could have avoided bankruptcy and possibly made it easier to find new well-paying jobs.

Although there always has been and always will be consumers who will benefit more from a Chapter 7 than from negotiating their debts, the fact is that many debt-stressed consumers who do file were actually excellent candidates for debt settlement.

If you have hit the debt wall and want to learn about all of your debt management options, including debt settlement, visit Consumer Recovery Network. While you’re there, become a member of Consumer Recovery Network (CRN), with no risk to you, and find out if you should pursue debt negotiation.