Hiring a debt settlement company using a front loaded fee model endorsed by TASC and USOBA is more likely to lead a consumer to Bankruptcy then to a successfully completed settlement program. There are various reasons why this is unfortunately true, but one of the most obvious to me is that debt settlement salespeople for the most part, always recommend debt settlement, regardless of whether or not it actually makes sense given the financial circumstances of the client.
The following is an actual case study of a client that I am currently assisting, and her first hand experiences calling debt settlement salespeople for financial assistance. This information is reprinted with permission and I will simply call my client Jane.
In this article I am going to be picking on Legacy Debt Solutions and Credit Solutions, because Jane happened to be enrolled in both of these programs at the time she called me. That’s right; she was enrolled in 2 debt settlement programs at the same time. Luckily she only recently enrolled in them and hadn’t yet paid the 1,000’s of dollars in fees they were going to collect in the coming months.
I have already shared a little bit of Jane’s experiences in a prior article. TASC – Just Another Marketing Gimmick There you can read about how it was she came to be involved in both of these settlement programs at the same time. Neither one of these programs made any sort of financial sense for Jane, yet in that article you will see why it is clear that TASC doesn’t really have much to do with protecting consumers and how salespeople use TASC to push consumers into bad financial decisions.
What really pissed me off about Jane’s story was that in the first 5 minutes of our initial consultation it was obvious that Jane’s financial circumstances where such that a debt settlement program was the last thing she should be enrolled in, let alone two of them.
During my initial interview Jane disclosed that she was retired and lived on a small social security check, and an investment account which she took a principle draw from every month for the majority of her income. When I asked about the amount in the account I was shocked to hear that at her current rate of withdrawal she would deplete the entire account within 12 to 18 months.
Wait a minute? Some salesperson from Credit Solutions and then also Legacy Debt enrolled her into a 4 year program at over 1,000 dollars a month, collecting all of their fees upfront, knowing that she was going to be out of money completely in 12 to 18 months? No. They never even asked about her income. They didn’t care where the money came from, or how long it would last or anything other than, can you enroll right now and start paying a monthly payment?
It is moments like this, where I wish Jane could call up these individuals that did this to her so I could reach through the phone and give them a reality slap upside the head. I mean this is criminal what they are doing here. Both of these companies would have literally sucked Jane dry for fees until the money ran out, then they would have probably dropped her like a bad habit and blamed her for the failure of their program simply because she didn’t have the money to settle the debt.
At that point, her only option would have been a chapter 7 bankruptcy. She would have paid either of these companies over 10,000 dollars simply for the privilege of fast tracking her to Bankruptcy.
So what was my advice?
Well after completing my interview I learned a lot more about Jane’s situation and specifically certain goals that she had. She wanted to avoid filing for Bankruptcy because she felt that since she borrowed the money she would like to pay it back. However, unless we made some drastic changes to her lifestyle then Bankruptcy would be inevitable when the money ran out in 12 to 18 months.
At this point the plan was about capital preservation, cutting expenses to the bone, looking for ways to increase income, and get her budget to the point where she was able to live without further drawing down her investment account, or at least dramatically reduce the amount that she was drawing down and stretch out the principle for as many years as possible. A debt settlement was absolutely pointless unless she was able to stop drawing down her investment account.
I told her upfront, that the prognosis of avoiding a BK looked grim, however, she couldn’t file for Bankruptcy right now anyway or they would simply liquidate most of her investment account to pay the debt and she could do that on her own without filing for BK. But we had to get her budget cut way down in order to preserve enough capital to even attempt a settlement down the road.
There is certainly no point in hiring a debt settlement company unless there is a pretty good chance you will be able to raise the money to fund the settlements. What are the chances that a debt settlement salesperson would ever say that to a client? I am guessing, maybe 1%. I know of a few good guys out there in the industry, but not many.
Here are a few of my action steps I gave her after the first consultation.
- Cancel both settlement programs right away before you are charged.
- Take immediate steps to cut expenses to the bone. (I gave her specifics)
- Immediately sell time shares, for a loss if necessary.
- Put house on the market, based on projected time on market, consider stopping the payments.
- Look for a small place to rent or move in with family.
- Stop paying on the credit cards immediately.
- Fill out my budget worksheet so I can see everything in black and white.
- Look for either part time or full time work as quickly as possible.
- Call me back in a few days to update me on progress, review budget, and formulate secondary action steps
Again, these are just a few of the steps. Others had to do with specific financial issues that I have not discussed in this case study.
Now I know I am picking on Legacy Debt Settlement and Credit Solutions in this article, but they are just the ones that actually were able to convince her to enroll in their programs. She spoke with several other settlement programs and not one of them, not even one friggin salesperson, ever thought to ask her about her actual financial circumstances. All they want to know is how much do you owe, how much do you want to pay per month? Then they will say, Ya, we got a plan for that, sign here.
It has now been about a month since the first consultation. How is Jane doing so far? Much better. She was luckily able to get out of the debt settlement contracts, she has her house on the market, and is optimistic that she may even be able to make a little money on it. She has already cut her expenses by at least a third, and will be cut by more than 60% once she is out of her house. She actually called me today and asked me about turning in her car and purchasing an older but more reliable model for cash, which would free up another 400 a month in her budget.
She admitted that some of these decisions are hard to make but she is feeling this huge burden starting to lift off of her shoulders as she gets out from under all of these crushing payments. She is currently looking into job options. We still have a ways to go, but with some hard work, and some luck, we might just do the impossible and get this budget balanced.
At that point, we will take stock of her new and improved financial circumstances together. Taking into account how much is left in her investment fund, current circumstances and future financial needs, we will be able to make an educated decision about whether or not she should settle her debt or file for Bankruptcy.
Debt settlement salespeople typically do not know how to do anything but sell you debt settlement. It doesn’t make much sense to call them for a consultation unless you are looking for a sales pitch on their specific program. You don’t need a sales pitch until after independently researching all options, gaining a full understanding of the debt settlement concept and whether or not it is a financially viable option for you.
Debt Settlement salespeople are competing against other debt settlement sales people to sell you their program. It is more about “selling against the other guy” then it is about helping you find the appropriate solution.
In the ultimate irony, the only reason Jane found my website in the first place was because the Legacy Debt Solutions salesperson, was trying to convince her to sign up into their program and drop out of Credit Solutions. I had previously written an article about Credit Solutions getting sued by a number of attorney generals.
So the LDS salesperson, in his/her zest to “sell against” Credit Solutions found my article online and sent it to Jane as a way to say, “see, they are bad, you should quit and sign up with me.” Unfortunately for them, they didn’t count on Jane watching my debt settlement video and realizing that all of the debt settlement salespeople she spoke with, were simply selling her a bill of goods that didn’t make a bit of sense given her circumstances.
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