HOw Do Debt Settlement Companies Get Paid?

Debt Guy · #1 (**permalink**) 07-08-2009, 07:24 PM

One of the most important aspects of working with a debt relief program is How The Company Makes Its Money.
Basically, there are two models in our industry right now. The first model is one we use, whereby our negotiators do not get paid until a settlement is made. More or that in a moment.
The second or newer model, (i.e. companies that have started up within the past 5 years), use the percentage of debt model. With this model, you pay anywhere from 12% to 18% of the total amount of debt you owe. For example, if you have $50,000 in credit card debt, and the company charges you 15% of your total debt, you will pay them $7,500, BEFORE they start doing any work for you. ($50,000 x 15%)
The first model, and the one we use, is an incentive based model in that the negotiators are only paid when a settlement is made! You pay only a one-time set up fee to start.
For example, let’s say you owe one of your credit cards (CC) $1,000. Our negotiator settles that account for $400 or $.40 cents on the dollar. The negotiator earns 30% of the dollar amount they saved you. In this example, you saved $600; therefore the negotiator earned $180 (30% of $600). The total you paid out would be $400 to the CC company and $180 to the negotiator for a total payout of $580 of $.58 cents on the dollar.
However, let’s take the same example, however this time the negotiator settles the account for $300, or $.30 cent on the dollar. In this example you saved $700. 30% of $700 = $210. Therefore, in this example you would pay a total of $510 of $.51 cents on the dollar. ($300 to the CC Company and $210 to the negotiator).
Therefore, using this first model, the more a negotiator can negotiate your debt down, the better it is for you and the better it is for them. It is a win-win situation.
That is why we will always stay with this model. In addition, with our model, should you have to cancel the program for any reason, any monies in your trust account would be returned to you. In the other model (percentage of debt) you would only get any monies left over after having paid the $7,500 first.
We suggest that when shopping around for the right debt reduction company to do work with in helping you settle your debt, you take this into consideration. It will save you time and a lot of money over the long term, in addition to having someone paid an incentive to the best possible job they can for you.

Curtissmith · #2 (**permalink**) 07-13-2009, 01:28 PM

Why shop around for anything, there is not one thing they can do for you legally that a consumer can not do themselves. With no more than a little bit of research the average consumer can simply pick up the phone and settle their own debts. In many cases collection agencies will give better rates and discounts to consumer directly than they will any third party. I never understood why people want to give their money away to these debt agencies.

Debt Guy · #3 (**permalink**) 07-13-2009, 09:36 PM

Quote:

Originally Posted by Curtissmith

Why shop around for anything, there is not one thing they can do for you legally that a consumer can not do themselves. With no more than a little bit of research the average consumer can simply pick up the phone and settle their own debts. In many cases collection agencies will give better rates and discounts to consumer directly than they will any third party. I never understood why people want to give their money away to these debt agencies.

Curtis, thank you very much for taking the time to read and review our post. You obviously are not verse about our industry. However that is okay, most people are not. That is why we send out these posts, to help educate the populas. If consumers could do this own thier own AND get the settlements that we get, there would not be an entire industry that does this. Best of luck to you and thank you again.

Curtissmith · #4 (**permalink**) 07-14-2009, 09:28 AM

Since I been running a collection agency for over 17 years now, I believe this qualifies for being verse.

Lets be honest here your not sending out these posts to educate anyone, your sending them to advertise your services and drum up new business.

Why would we give a debt relief company a better deal? Typically all these companies do is take consumers money and simply set them up on a monthly payments with no discount at all. I cant tell you how many times we get letters from these companies and call the consumer directly and work out a better deal for them.

Again their is nothing that a debt relief company can do that a consumer can not do themselves.

Curtis

tnmccask · #5 (**permalink**) 11-12-2009, 11:23 PM

It is better just to settle with the creditor yourself to save money and your credit scores.

SafeTrustJeff · #6 (**permalink**) 11-20-2009, 10:04 PM

Quote:

Originally Posted by Curtissmith

Why shop around for anything, there is not one thing they can do for you legally that a consumer can not do themselves. With no more than a little bit of research the average consumer can simply pick up the phone and settle their own debts. In many cases collection agencies will give better rates and discounts to consumer directly than they will any third party. I never understood why people want to give their money away to these debt agencies.

I disagree, Although the consumer can settle their own debts, it is very tough and takes a lot of time and research and pretty much knowledge of the industry to do so..

or atleast in regards to the way my company does business, we have a significantly higher success rate negotiating with creditors than a single consumer would because we go to the creditors with 1000s of accounts and millions of dollars at a time when we go to settlement and they are more likely to take that rather than try to nickel and dime all of the accounts, who are having trouble making the minimum payments now as it is.

Think of it this way, if your paying on time.. and you go to try and settle with your creditors, they won't.. they have no incentive to settle, your just a cash cow who keeps paying their rediculous interest rates which is why CC companies keep consumers in this constant vicious circle of debt.

Don't get me wrong, I know their are valid arguments and points for both sides here, I'm just saying.. It does save the consumer a lot of time and money to go with the right settlement company as opposed to try and settle theirselves.

Not to mention the potential risk of having a Judgement brought against you by the creditor and then your locked into paying the full amount by court order. I'm not sure about all debt settlement companies, but the one I work for offers 60hrs of free Legal Representation to clients if they were to get sued by the creditors.

Of course like I said I can't speak for all Debt Settlement companies because there are a lot of frauds and scams out there. I know my company is one of the select few that is able to settle debt in all 50 states and this is because we stay compliant with all the attorney generals and even try our best to stay compliant with the future laws they want to enforce to protect U.S. Consumers.

SafeTrustJeff · #7 (**permalink**) 11-20-2009, 10:16 PM

Quote:

Originally Posted by Debt Guy

One of the most important aspects of working with a debt relief program is How The Company Makes Its Money.
Basically, there are two models in our industry right now. The first model is one we use, whereby our negotiators do not get paid until a settlement is made. More or that in a moment.
The second or newer model, (i.e. companies that have started up within the past 5 years), use the percentage of debt model. With this model, you pay anywhere from 12% to 18% of the total amount of debt you owe. For example, if you have $50,000 in credit card debt, and the company charges you 15% of your total debt, you will pay them $7,500, BEFORE they start doing any work for you. ($50,000 x 15%)
The first model, and the one we use, is an incentive based model in that the negotiators are only paid when a settlement is made! You pay only a one-time set up fee to start.
For example, let’s say you owe one of your credit cards (CC) $1,000. Our negotiator settles that account for $400 or $.40 cents on the dollar. The negotiator earns 30% of the dollar amount they saved you. In this example, you saved $600; therefore the negotiator earned $180 (30% of $600). The total you paid out would be $400 to the CC company and $180 to the negotiator for a total payout of $580 of $.58 cents on the dollar.
However, let’s take the same example, however this time the negotiator settles the account for $300, or $.30 cent on the dollar. In this example you saved $700. 30% of $700 = $210. Therefore, in this example you would pay a total of $510 of $.51 cents on the dollar. ($300 to the CC Company and $210 to the negotiator).
Therefore, using this first model, the more a negotiator can negotiate your debt down, the better it is for you and the better it is for them. It is a win-win situation.
That is why we will always stay with this model. In addition, with our model, should you have to cancel the program for any reason, any monies in your trust account would be returned to you. In the other model (percentage of debt) you would only get any monies left over after having paid the $7,500 first.
We suggest that when shopping around for the right debt reduction company to do work with in helping you settle your debt, you take this into consideration. It will save you time and a lot of money over the long term, in addition to having someone paid an incentive to the best possible job they can for you.

I don't Like your examples, Our Industry is very rocky with a lot of fraudulent companies and scams out there. You cannot sit here and say that your models break down every companies fees or how they get paid. You are also simply trying to up-sell your programs fee, not provide an exact example from companies who use the other model, yet you were pretty detailed about the model that you use.

So although I am a Financial Consultant and do work in the Debt Settlement and Loan Modification Industry, I do not support this post although your figures are roughly in the area, you are simply implying things about companies you know nothing about so you obviously didn't look into any companies that use the other model in order to get your facts straight.

And with your One-Time Fee, in which you didn't bother giving an example of that, is probably equal to the difference between the two models. notice I said probably because I do not know so I'm not going sit here and state it as fact.

Also, Each state's Attorney General has different laws and regulations for the Debt Settlement industry so you can't explain to the entire United States Debt Settlement with 2 simple models like you used.

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