Here is an excerpt from a recent settlement with CHASE.
The original balance was $17,828.33

"We are pleased we found a settlement that works for you. This letter confirms that we agreed to settle your credit card account for $6000.00. As a result of this settlement, you will benefit from all these advantages:

You will only pay $6000.00, a significant savings over the full balance. We will stop all attempts to collect. Upon conclusion of the settlement, we will report your account to the national credit bureaus as settled with a remaining balance due of zero (0.0)"

~L

Debt Consolidation companies work on reducing the interest rates of your credit card companies, some companies don't participate in these interest lowering programs, and usually if you miss a payment or two they bump your interest back up. You also have to rely on the debt consolidation company getting your payments to your creditors on time because you pay them, and they pay your creditors. This method also has negative credit effects on your credit profile. You are still responsible for the entire amount owed and you are still being charged interest on the balance while in the program.

Also NPO Consolidation companies are usually paid a percentage of the client's payment from the credit card company, on top of their own monthly service fee; so the word non-profit is somewhat misleading.

Debt Settlement works on the balance owed; not interest.

Now I can only speak for my company, but our company negotiates only from the principal balance owed when the individual enters our program. Settlement is reached from the balance, and before the creditor is paid, we require a letter from the creditor stating that they are accepting payment for the client's account in full & that their credit report will be updated with a -0- balance. This protects the client from having a creditor come back later and saying that they still owe the difference or late penalties or fees. It would be unfair to the client to be charged penalties and late fees on a balance they couldn't afford to pay in the first place.

The credit report will show a series on nonpayments, then -0- balance when the debt is settled.

The creditors are kept up to date on the clients progress and can log-in and see that clients are making their monthly savings comittments. They know they are not getting paid back monthly, but they also know that they will get paid back in a relatively short amount of time. The client is updated with monthly calls. The system works, but only if everyone involved (both the client and the creditor) are all on the same page.

Not all states allow organized debt settlement, unless passed through a local attorney, and many states have a limit on the number of years that an individual can take to get out of debt through settlement.

Debt settlement companies have specific compliance guidelines regarding proper disclosure, that they have to follow, that are required by the Federal Trade Commission.
At my company our calls are randomly monitored for compliance, and we have roving compliance managers that walk around and listen to make sure they we stay compliant.

~L

At our organization, and I won't mention the name for fear of spamming. We are encouraged to spend at least 45-60 minutes on the phone getting a clear understanding of the individual or families true situation. Probably 3 out every 10 people I contact I'm not able to help because they either are on a fixed income, or they have waited too long and their creditors have already taken legal action against them or they can't afford to get out of debt in 3 years or less; creditors won't wait forever to get paid; they do have other options.

1. If they are on a fixed income (ie..SS and/or Disability); we encourage them seek assistance from free Legal Aid or a Bankruptcy attorney. As a rule, we are not allowed to accept clients on a fixed income. It would be ridiculous to expect someone that makes $1200 month to pay $200-$300 of this to pay their creditors. Something usually has happened to cause a major loss of income, it's not people trying to pull as fast one on someone.

2. Depending on the number of clients the company represents and their particular creditor relations is in a large part what the settlement amount that can be reached come from, in addition to the particular persons situation. Contrary to what the credit card companies would have you believe, they often do settle for as low as 15 cents on the dollar, and I'm talking major original creditors like Bank of America, Chase, Wells Fargo, WAMU, Citibank. Generally 50 cents or less is what can be negotiated. So I disagree with MuCow...there is always power in numbers and I know that we achieve much lower settlements than individuals can. Indviduals can get settlement offers but the catch is the credit card company wants them to pay it back in 3-6 months, and bring their balance up to date first. What usually happens is the consumer can't complete all the payments...so the original balance goes back on.

Credit card companies are in a pinch, and the sad fact is alot of people have their ARMs (Adjustable Rate Mortgages) going up and they have made the decision to keep their house rather than pay the high interest rates of some companies. I can't blame them; at tleast with settlement they are taking some responsiblity and offering to pay back their creditors something.

I've seen this year, a 46,000 credit card bill (2-cards) with a major credit card company, reduced to $6900 and that particular person was in and out of the program in 90 days...doesn't happen that often, but it does happen. Another one $5000 credit card bill reduced to $800.00; so it works on both small and large credit cards.

There are also some things that MuCow left out about the collection industry as well.

If the debt is sold (not assigned), it is generally purchased by a third party collection agency for as low as 8-20 cents on the dollar. So when they start tacking on additional fees on the original purchase amount, then offer to discount these if 'you can take care of in 3 or 4 easy payments', they are still making a huge profit, and some collection agencies are notorious for threatening, harrassing and plain out lieing to people about what they can do to collect (ie..you better pay us or we are going to garnish your social security!).

I believe that we are doing a good service for people that need help right now. The settlement industry is a necessary evil because the credit card companies continue to take advantage of people by continuing to send millions of preapproved credit offers to people that are already in trouble. Then they jack up their interest rate to $23.99% or higher and hit them with late fees and overlimit fees when they can't pay. At 23.99% if someone is paying minimum payment (generally 2% of their balance) only .01% is going to principal. No wonder it takes people 20+ years to get out of debt.

The settlement industry is like any other, there are good companies and there are bad companies trying to take advantage of people.

The best thing a consumer can do if they feel this is an option for them is do there own research on a company BEFORE signing up with any program.
www.ripoffreport.com is a good tool to look up any type of company; much better than the independently owned franchises of the BBB around the country.

~L