The NY Times recently wrote two interesting articles about credit card debt settlement ( A Nervous Time For Professional Debt Collectors and Credit Bailout). The general sentiment by many consumer advocates is that the do-it-yourself approach to debt settlement is currently the best option.
So, given the current environment and the fact that many debt settlement companies are outright scams, is there still even a need for professional debt settlement firms?
I recently interviewed Michael Bovee, president of a unique debt settlement firm by the name of Consumer Recovery Network (CRN) about the do-it-yourself approach and about settlement in general.
Michael, what exactly is Debt Settlement?
Debt negotiation (also called debt settlement) provides consumers with an alternative to bankruptcy. Negotiating with your creditors, like the banks that issued you credit cards, is a process by which you and the banks try to reach a compromise regarding the total amount of money you must pay on the account to pay it off. These negotiations are typically predicated on having missed several payments in a row and on your ability to establish that a hardship makes you unable to pay the balances that you owe. Successful negotiations can be achieved typically after an account has been delinquent for at least 120 days. In a nutshell, legitimate debt negotiation provides consumers with an ethical means of climbing out of the debt trap.
There seems to be an increasing interest in debt settlement by some credit card companies. Why is this shift happening?
Given the current economy, troubles within the banking sector, the financial industry's new focus on risk aversion, and increases in account charge off percentages for credit cards, many banks have become more willing to settle credit card debt and are willing to settle for less money than in the past. This is good news for debt stressed consumers. Banks, like struggling consumers, have to make hard business decisions regarding past due credit accounts. The banks want to minimize their losses and often negotiating a settlement with a consumer is the best way for them to achieve that goal. Put another way, settling a debt is often the best way for them to "lose the least."
Doesn't this negate the need for professional debt negotiators?
Consulting with a debt settlement firm can be a good idea. Consumers are often unaware of some key aspects of negotiation and the predictable nature of debt settlement. But choose a firm wisely. If you pay a hefty fee to a settlement firm (and most firms charge such fees), you could actually be prolonging the amount of time it will take to get out of debt because you'll have less money to put toward your debt.
At CRN. we provide consumers with all of the information they need to negotiate their own debts. We would rather our members negotiate their own settlement deals using us as advisors because we won't have to charge them a settlement fee and, therefore, they will have more money to put toward their debts. In fact, many of our members, after reading the educational materials that we provide to them and availing themselves of the CRN Debt Specialist assigned to them, end up negotiating the same, or even better deals, than many of the high paid firms could get for them.
When might a consumer need you to settle their debt?
When consumers don't want to negotiate their own debts or run into trouble with a particular negotiation, CRN can do the negotiating for them. However, CRN only charges them a fee for that service after a settlement has been reached and those consumers pay the creditor they've settled with before they pay CRN. This is a very different fee arrangement than the one used by most debt settlement firms.
In closing, it is very refreshing to hear of at least one debt settlement firm who is putting consumers first. It's unfortunate that this industry has gotten such a bad reputation, but hopefully other firms will follow CRN's example. The bottom line is that I still am pretty skeptical of the industry and, in general, prefer a do-it-yourself approach. However, I do realize that not every consumer is comfortable with such a do-it-yourself approach and am thankful that at least one reputable company is helping to meet the needs of these consumers.