Weighing the Benefits of Debt Settlement

For a fee, consumers can get help negotiating lower debts.

When consumers with mounting debts get desperate, they often turn to what can seem like their last, best hope: debt settlement companies.

Those companies are taking on an increasing number of clients as more consumers find themselves unable to pay their bills. Bankruptcy filings are up 30 percent over last year, and many consumers have so much debt relative to their income that debt settlement companies decline to take them on as clients. (Credit counselors, who focus on financial literacy and rehabilitation rather than negotiating lower payments, often work on those more severe cases.)

For a fee, struggling consumers can hire a company like Integrity Debt Solutions (IDS), which currently works with over 1,000 clients. Gary Wayne, president of IDS, says his clients have between $12,000 to over $300,000 of unsecured debt, which includes credit cards, overdue rent, medical bills, unsecured loans, and utility bills. Mr. Wayne was asked to explain the ins and outs of his business. Excerpts:

How does debt settlement work?
People call us to ask about signing up for the program. We help them start the process of saving money and then contact their creditors [on their behalf]. We usually get creditors to accept a 25 to 70 percent settlement rate. This month, we’re getting a 37 percent settlement rate. The companies are willing to accept that because otherwise, they could get nothing. Generally, at that stage, people are going to go bankrupt, and it’s hard for banks to know what’s going on. Hardship clients [people who are experiencing major life challenges that make it impossible for them to pay their bills] don’t have much money, and sometimes the bank never gets paid.

Do you also help teach clients how to save money?
We don’t give legal advice, but we do tell people how they can save money. We go through their debts and pick which ones they should do first.

Does it hurt a person’s credit score to do that?
It can hurt it temporarily, but in the long run, it’s better to get out of debt. Around 25 percent of clients who get out of debt do it in a year or less. The other 75 percent do it in a two- to three-year time frame. It takes time to build up funds. We stay in touch with our clients about every other month, whether we need to or not, to check in. We often urge people to keep one credit card [so they can build their credit score back up by making regular payments]. It usually takes six to 12 months before they can start rebuilding their score.

Why do you specialize in Texas?
The founders of the company used to work for a nationwide debt settlement company and learned about many of the beneficial consumer protection laws that each state has. It turns out that Texas has some of the most beneficial laws, but consumers are simply not aware of these laws & benefits. We decided to start our own company and educate our clients and implement these protective measures so clients could save more money than other debt settlement programs and have more peace of mind & security.

Why do you offer a money back guarantee and how does it work?
We knew when we first started in 2004, that there were many scam artists & companies out there. We wanted to differentiate ourselves from our competitors and minimize their risk so from the very beginning we had our attorneys include money back language in all of our clients enrollment forms and contracts. The guarantee states that if we cannot reduce a client’s debt by at least 40% (where they pay 60% or less), then they will get our program for free. Of course, we never know for certain exactly where we can & will settle a particular debt for a client, but if we cannot reduce their total debt on all of their accounts combined by at least 40%, then we feel we don’t deserve to get paid. The good news is that we have not had to refund anyone yet – a track record of which we are very proud and working diligently to maintain.

How much does your debt settlement service cost?
We charge 15 percent of unsecured balance you bring in, which can be paid over a period of months and can be customized to what the client can afford. There is no application fee. So for someone with a $10,000 debt, they will pay us $1,500 which can be paid in $100 increments over 15 months.

Do you ever turn customers away?
When we first talk, we go over their debts and income. If they don’t have enough income, we say, “You can’t afford to be in a program like ours. Maybe consumer credit counseling would be better.”

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