Confessions Of A Debt Settlement Company Worker

C writes:

After spending a year (one of the worst of my life) working at a debt settlement company, I feel that I am obligated to warn as many consumers as possible about how badly you can ruin your financial situation by using one of these companies. My new job is at an all natural bakery, I no longer wish to swerve my truck into a tree on the way to work. Debt settlement is the process of eliminating your debt by ceasing payment to the creditor, and then negotiating with the card companies or collection agency to pay less than the balance owed. The debt settlement company charges a rather hefty fee for this service; however, the consumer should be saving money on the deal because they are paying significantly reduced balances to clear their debt. This is how it is supposed to work. This is not how it usually works.

The clients at the company I worked for ranged from lower class/blue-collar workers who were unable to find jobs, and had mounting medical bills to upper-class white collar workers who had incomes upwards of $9k a month, stay-at-home moms and college students. Some clients were only in $8,000 of debt, and some were upwards of $100,000. Their reasons for accumulating debt ranged from sick children and unemployment to simple avarice.

Our program was designed to eliminate a client’s debt in 36 months or less. The client would pay our fee, which was based on the amount of debt they were in, over a period of 12 months. At the same time they contractually agree (a contract I will elaborate on) to save a certain amount of money, so that when the time comes to arrange a reduced pay-off of their debt (usually 50% off of the owed amount), the money would be available, and the transaction would be complete. This sounds like a logical process, and when described to a potential client it is alluringly simple, convenient and quick. The sales person will convince the client that they will somehow be able to save money in their own accounts, and pay our fees for a year. It is nearly impossible for the client to save money due to the heavy fees. Other debt settlement companies will set up a savings account within their company, and the client is obligated to put a stipulated amount into savings every month. If they miss a month, they are canceled with no refund as per the signed contract. There were clients at my company whose income was only $900 a month, who were being asked to save $400 a month, and then put $200 a month towards the program’s fee. The program demands that the clients save and spend unrealistic amounts of money for their incomes.

The “client service agreement”, which I referred to as a “contract with Satan”, confounded most clients.
The contract is written in legal rhetoric that most people wouldn’t comprehend, but would end up being persuaded to sign anyways. The average client is not educated about credit reports, FICO scores, and legal vocabulary, so a sales person could easily talk them into the program. The contract actually states that the company is not responsible for any negative repercussions due to their enrollment in our program. It also stated we could cancel a client without refund at any time (which happened a few times in a year), and that if a client cancelled we were still due our year’s worth of fees no matter what. Money that we were practically guaranteed because we drafted directly from the client’s checking accounts. No person in their right mind would sign this contract if they understood what it meant.

Our sales team and client liaisons ensure clients that if they withhold payments from their creditors, our representatives will effectively negotiate with the creditor, and all will be well. Yet, it states in the contract that our company does not interfere with the creditor/client relationship, and does not instruct clients to cease payment to the creditor.
Many clients had their wages garnished, had liens put on their property and their credit ruined because of not making payments to their creditors. The company was covered by our air-tight contract. If anyone client threatened to see a lawyer my boss would throw the signed contract in their face, and dare them to seek legal council. Usually when a client had finished paying our fees they couldn’t afford a lawyer anyways.

I worked in administration while I was at this company. My boss (the owner of the company) made around $17,000 a month from people in debt. Side note: I was only paid $14 an hour, with no benefits, no sick days, and of course no paid vacation. I also felt miserable every day of my life there. My boss was ridiculously petty, money grubbing, and in my opinion he was the definition of a pig. He is the type of person that would sell-out their own grandparents for an extra few dollars. Although, I wasn’t one of the employees that were talking people out of their hard earned money and financial security, I felt sickeningly guilty knowing I was working at a place that basically stole from people. My fellow employees and I fielded calls all day from angry clients that weren’t paying the reduced balance to their creditors that they were promised at enrollment. Interest charges and late fees pile up on unpaid accounts, so that by the time a 50% pay-off is reached, the client is paying almost what they originally owed. We also had irate clients calling about wages that were garnished and complete harassment by phone from their card companies. My boss refused to take any phone calls, although he was the main decision maker, other employees who were supposed to be client representatives did their best to avoid phone calls because they were sick of being yelled at, or hassled. Getting help from the people who were supposed to be giving it is impossible at this company, and I’m sure it is equally difficult at similar companies.

Here is a short list of thing that horrified me while working there:

  • A client was convinced to let their vehicle get repossessed. The sales person told them that while it was secured debt, they couldn’t deal with it, but if it was repossessed they could negotiate. Repossession stays on a credit report for 10 years, and can ruin a FICO score.
  • A client with a terminally ill child had their wages garnished, although they were promised this would not happen. They were refused a refund, and lost the $3,000 they spent on the company’s fees and were still in a huge amount of debt.
  • A client that angered my boss was cancelled without refund after paying around $1800 for the service. My boss didn’t like how the client spoke to him.

I could go on for several pages about all the things that were horribly wrong and unethical that I witnessed alone.

If there is a debt settlement company out there that is truly helpful to the consumer, I’m not aware of it.
The old saying “If it’s too good to be true, it probably is” is absolutely right. If a company is promising anything that seems beyond reason, they want your trust and then your money. The sales team at our company made a pretty decent commission rate from enrolling new clients. They will usually say whatever the potential client wants to hear, so they get that sweet bonus at the end of the month.

If you are in debt there are a few things you can do that are helpful. If your credit score is decent you can usually negotiate a better interest rate or payment plan with the creditor. Always pay more than the minimum balance if possible because often only 1-2% of the payment is going towards the principle balance. If you pay off a card do not close the account, it’s best to keep it open and occasionally spend and pay off a small amount every month. Avoid debt-consolidation. Debt-consolidation is a process where a client pays one large payment, which accounts for all of their debt, to a company that then distributes the payments to the creditors. This process takes 4-7 years to complete, the payments are large and usually carry an interest rate or fee, and 70% of people that use debt-consolidation are in worse debt within 2 years of the program than they were before they started. Avoid bankruptcy, it is on your credit report for 10 years and it is a question you answer for the rest of your life. If you are already behind on your payments, and you have a reason for financial hardship such as unemployment, illness, some sort of disaster, you can often negotiate a reduced balance on your own. If a credit card company does not receive a payment for longer than 6 months, they will often accept up to 50% less than the owed amount, although you normally need proof of financial hardship.

The best advice I can give to get out of debt, is to pare down to the essentials. Sell some of your stuff, only spend money on necessities like essential food/gas/doctor’s visits, if you rent and you can break the lease get a cheaper place, getting a roommate is always an option, don’t be above getting a second job if it’s possible. A lot of clients were in debt because they couldn’t resist the siren call of a plasma screen TV, or a few new things at Banana Republic. They also drove cars that were beyond their income, and they couldn’t resist eating out a few times a week. If you are motivated you can get out of debt on your own, it won’t be easy, fun, or quick, but you won’t risk getting screwed over worse than you already are.



Edit Your Comment

  1. valarmorghulis says:

    WOW, that last paragraph is some of the best general advice I have read on the consumerist ever.

  2. starrion says:

    Now that’s a confession.


    Wow. Don’t pay your bills! We’ll negotiate with your creditors so that you pay less. But pay us. In full.

    Shocked and appalled don’t cover it.

    Can we find out what company? I want the final bracket in the Worst company to be between the payday lenders and these guys.

  3. chemmy says:

    I can see why this person wanted to drive into a tree on a daily basis.

  4. Those are some horror stories…

    There is some good advice from OP though, it just kind of repeats the usual advice though about reading contracts before you sign them.

  5. Umisaurus says:

    This makes working in retail seem life-affirming in contrast.

  6. quail says:

    I knew that settlement companies seemed scummy from their advertising, nestled in between worker’s comp lawyer ads and all, but this is sickening. They’re as bad as many of those credit clean up services — you know, the ones where they say they’ll clean up your credit after the fact. Much of what any of these guys do you can do for yourself.

  7. bohemian says:

    The letter writer needs to show her ass up at the AG’s office and let them know all of this. This has got to be violating some laws at a state level wherever they are located. Possibly some federal ones.

  8. NightSteel says:

    Great advice. Unless of course you consider the number of people likely to actually follow it.

    Some people get into debt because of unforeseen emergencies, like medical expenses, etc. I have nothing against that. Crap happens. But let’s face it, someone who’s not responsible enough to stay out of a completely preventable debt is probably not going to suddenly see the light and do the right thing. They’re going to whine and complain and be some sort of burden on the rest of us, precisely because they are irresponsible.

  9. BigBoat says:

    Good article, thanks for putting in the time on this.

  10. djanes1 says:

    This reminds me of the time I got into debt because I ate too many expensive sandwiches from that all-natural bakery in my town.

  11. gqcarrick says:

    How do companies like these even legally operate? Why doesn’t the state and the federal government get rid of horrible companies like these?

  12. van_line says:

    My story of debt and redemption:

    Graduated college, moved to the city. Took a job that paid less than what I made waiting tables in a city that was twice as expensive.

    I had about $9k in credit card debit, had a couple of deliquent accounts. It got so bad that you don’t open your credit card statements because you can’t deal with reality and the late charges.

    Randomly picked a non-profit debt company from the internet. They got all of my interest rates on my card down to close to 0%. I spent the next 12 months putting ever single dime I had against the debt and I paid it off completely.

  13. abooth says:


    Your story struck an immediate discord with me. I have been in the Financial & Credit Industry for 10 years, the last 6 of which I have been providing Debt Settlement services to people all over the country. This type of service allows people who cannot meet their debt obligations due to overwhelming hardships as you mentioned in your story.

    I believe the problem you faced was nothing more than poor ownership/management. It is unfortunate that you worked for an owner that did not provide sick days or vacation, but that does not mean that a properly qualified client cannot benefit from a Debt Settlement Service.

    The examples of clients not receiving refunds for service unperformed is another problem that I have not experienced in my time in the industry. There are thousands of people that are barely or completely unable to meet their minimum payment requirements – as you mentioned, paying only the minimum payment with interest rates of 20% or higher will never allow you to satisfy your debts in a reasonable amount of time. If your company was enrolling customers that weren’t in need of the service, that does not indicate Debt Settlement doesn’t work.

    Some of the terrifying examples of how your customers and employees were treated is very unfortunate. I would assume you were a larger company, 40+ employees? With sales commissions and lack of supervision, these types of issues are common in every industry. (I’ll spare you the horror stories of what a commissioned bill collector may say/do to convince a debtor to make a ‘payment by phone’ — particuarly in the larger companies)

    Unfortunately, many people with little or no experience in the finance industry see an opportunity to make a large profit in Debt Settlement. However, there are companies out there, like mine, that provide this service as helpful alternative to the other choices out there. I left a more lucrative job in the collections industry because I saw first hand how the process is designed to keep people in debt indefinitely. Imagine how poorly their customers must be treated and what financial ruin they must be in to sign up for companies like yours.

    Hopefully, these people will find a Debt Settlement Service that is run by people that understand what it is like to be in debt over your head and truly want to help. A company that will gladly refund any fee if the program was unsuccessful or if the clients hardship became too overwhelming and they were forced into bankruptcy.

    I am not posting this response to attempt to advertise for my company or to refute the experiences you may have had at yours. However, I am very well educated in the finance and debt industry, and if anybody would like to discuss this further, please feel free to message me here.

    To “C” … all I can say is that I’m sorry you had the experience you did. It is unfortunate that there are Debt Settlement companies in operation that do not do things the right way. However, just because one mechanic sells you parts you don’t need and doesn’t fix your car properly does not make them all crooks. I am in this industry to try to help those in need. I assure you the companies charging them 25% Interest, $50 Late Fees, $50 Over Limit Fees, $100 Annual Fees, and calling them 7 days a week 5 times a day are NOT working in their best interest.

    Adam B

  14. sarsbar says:

    Holy… shit.

  15. spinachdip says:

    I’ve mentioned this before, but before you go to a debt management company, talk to the credit card issuer and work out a payment plan. Seriously, the last thing they want you to do is to think there’s no way out and default or go with debt settlement. You’d be surprised how willing they’re willing to work with you, and give you a reasonable monthly payment and interest rate.

    If nothing else, you’re working directly with the bank instead of a middleman who’s trying to squeeze more money you obviously don’t have.

  16. katylostherart says:

    if you’re going to a debt management thing, look for an npo. they’re usually legit.

  17. sleze69 says:

    The Consumerist has been on a roll with these REAL confessions lately. Keep up the good work!

  18. RobertH2O says:

    Wow. Again, best advice is the last paragraph. I would also love to know what company he works for.

    As per debt consolidation, I went through that to pay off nearly $7000 in stupid credit card debt and medical bills (had no insurance at the time). It was one of the best decisions I made and helped me eliminate my debt in just over one year. My credit card rate that had been at 29.99% (thanks Chase!) was reduced to 6%. That said, the company did charge $20 a month for their services, so it probably worked out to about 11%, but still much better than I had. And I’m not sure how 70% are in worse debt in the end. The contract I had to sign stipulated that under no circumstances was I to open any further credit accounts or my plan would be terminated and the rates would go back to the original.

    I’d recommend the last paragraph first, mind you, because debt consolidation is a hassle. That said, if you have no other choice, I don’t think debt consolidation is a bad thing. But like everything in life always look out for the crooks and research the companies thoroughly.

  19. rochec says:

    Well this isn’t how most or the ‘best’ Debt Settlement businesses run. People are once again entering into contracts they shouldn’t be. Obviously this company is taking advantage of people who are bad with their money, easy catch.

    Most charge a flat % and that never changes and people really do save a ton of money. There is nothing good about debt settlement, of course it will always have a down side. You aren’t paying your debt, you can’t expect to come out fine. It will ruin your credit for 7 years, but if you only have to pay 50% it’s more than worth it in some cases.

    It sounds like he had a shitty boss and company. It’s a very profitable industry, but every one I’ve seen the sales people make an excellent living. If he was working administration and had no benefits and made $14 I don’t know what to say. Ya, profiting off of other people’s debt isn’t the most noble choice, but most people getting out debt this route is the better choice.

    So just like every industry, there are shitty companies. I’ve never seen one that operates like this and they certainly don’t charge equal to 50% of an individual’s debt.

  20. econobiker says:

    @rochec: Basically this is about doing it yourself rather than being scammed into paying someone to do it…

    by valarmorghulis at 05:00 PM Reply *
    WOW, that last paragraph is some of the best general advice I have read on the consumerist ever. has near the same exact info about getting out of debt…

  21. parad0x360 says:

    @Umilicious: lol no kidding. I am amazed and at the same time relieved. I always knew something was up with these things but never knew exactly how it worked. Now I know and im glad i never opted into this bs when i was in bad debt last year.

    Instead I paid what I could until I got my tax return and then cleared all of my debt aside from $800. I thought i was in bad shape owing about 5k but knowing “rich” people owe $100+k and feel the same pressure as I do makes me sorta happy =)

  22. Razta says:

    I used Consumer credit counseling many years ago.
    The program worked and we got out of debt in 3 years.
    Most of the credit card companies reduced their interest rate.

  23. Womblebug says:

    I worked in collections for a credit card company, more or less managing problems/exceptions. This guy is 100% spot on.

    These scumball companies would basically fax over a cease and desist, so we we not legally able to talk to the debtor, even to offer assistance, and then the debtor was instructed to allow the account to charge off. At a delinquency interest rate of around 27%, with late fees and overlimit fees accruing. Which was effectively doubling or tripling the balance while the account rolled towards charge off.

    Occasionally we would receive a so-called “settlement offer” of about 15 cents on the dollar (which no first party collector would ever do, I’ve never heard of third party going that low), and if we didn’t accept, we were informed that our account would be placed on the bottom of the pile and when there was more money available, maybe in a year, they might get back to us.

    At the same time, we were routinely offering customers who were six months delinquent a matching credit on their account, up to half the balance – not a settlement, a credit. But because these jerkoffs had the debtor do a C&D, we couldn’t tell them about it.

    As much as people bitch about collectors (and often rightfully so), these people are at LEAST as bad as the worst agencies out there. Anyone who is sincerely in need can get great results from a nonprofit CCCS (most of the ones who advertise also charge the debtors fees up front and are just as bad as the settlement co’s).

    Truth be told, many of the people who sign up for debt settlement services are not truly desperate, IMO. They spend their way into thousands in debt, someone tells them they can only pay half, and they get greedy. If you figure you can just scam your CC company for half of what you spent at Nordstrom’s, you get what’s coming to you.

  24. Redwraithvienna says:

    Funny how that works in the US. In Germany things like those companies exist too, but they are state funded help agencies. So they are basically free of charge and really try to get you out of your debt (by using pretty much the same strategies).

  25. SoCalGNX says:

    These companies should not be confused with legitimate consumer credit counseling services. They are not the same thing. The legit CCS companies will work with you and the creditors to get a good result for you such as lowering or eliminating interest payments, making a workable repayment schedule, making sure that your credit score is either good or being repaired while you are in the program etc. Additionally, they usually ask for a donation instead of charging you a fee.

  26. rochec says:


    I understand that.

    My point was there are a lot of companies who are very fair about helping people who honestly need help. Failing to repay your debts can cause a lot more harm than going the settlement route.

  27. @NightSteel: “But let’s face it, someone who’s not responsible enough to stay out of a completely preventable debt is probably not going to suddenly see the light and do the right thing.”

    Alternatively, they’re simply not educated about money.

    There are non-profit “debt-consolidation” places out there; where I went to law school there was a big one that was free and non-profit, but required clients to take classes on money and budgeting and debt and financial literacy. (Law students did supervised “legal aid” work calling creditors, and also helped teach the classes.) THAT’S the kind of place you want to use, ideally. But a lot of people weren’t interested because they didn’t want to take the classes.

    Which, okay, if you’re earning $90,000 a year and landed in debt because of a medical catastrophe, sitting in a classroom learning about how interest rates work wouldn’t be high on my list. But most of the clientele were lower-income people who simply did not understand very much about how money worked.

  28. Applekid ┬──┬ ノ( ゜-゜ノ) says:

    @gqcarrick: Too busy holding hearing about steroids in Baseball, deciding whether or not to let satellite radio companies merge, combing the books looking for Johns trying to get a little something-something on the side, writing out “shut-up” checks in the form of tax rebates… etc etc.

  29. kc2idf says:

    If there is a debt settlement company out there that is truly helpful to the consumer, I’m not aware of it.

    I have used DMCC. They put us on a five year plan, which is now nearing its end. There is a balance left over at the five year mark in our case, and what they are doing is extending the payment plan until it is actually finished. I am very happy with them, and would recommend them to anyone in a heartbeat.

    Oh, by the way, they are non-profit, so the profit motive is removed from the picture. They also do not require you to take any classes, bu they do make them available along with some educational materials.

  30. tortoisehead says:

    I would like to add my experience with this sort of thing. I wasn’t in crazy debt, but a few years after college I had about $40K in credit card debt, just paying the minimum payments, and not really getting anywhere as far as really paying them off in any sort of timely manner. If you have some cards with high APR’s it can be real tough to make a dent in your debt.

    I used “The Credit Network”, which like some mentioned is one of the non-profit organizations where the “fee” is negotiable. They got all my cards locked at 0%-3% APR and put me on an adjustable payment plan that I could modify if needed. I paid it all off in 3 years and there was no negative effect on my credit report whatsoever. So I would like to plug them as a great company to work with if you get in trouble.

  31. sean.thor says:

    I considered going with a Debt Settlement program when I thought I was in trouble. I the sales person I talked to used alot of scare tactics and was really pushy. I decided it was not for me and told the man thank you very much. He then got offended and started to pressure me even more, telling me that my credit was going to go down the tubes unless I particpated in their program. I hung up on him, and he called me back the next day to continue the argument. I couldn’t believe it. I told him to never call again and hung up. I’ve never heard back from the company (thank god!) and I’ve gotten a handle on my debt problem on my own, by cutting back spending and budgeting!

  32. lotsofchunks says:

    You’ll never read an article this good on Murdoch’s WSJ or CNN or Fox…..

    Did you know that just calling some of these places puts a mark on your credit !!! They get your info and a creditor would sure like to know that you are in trouble.

    Now do you think that Bear and Stearns consulted one of these outfits before JP Morgan bought them at the deepest discount in the history of the Federal Reserve Corporations discraceful takeover of this country ?

  33. mythago says:

    Why doesn’t the state and the federal government get rid of horrible companies like these?

    They’re actually trying to get rid of lawyers who sue horrible companies like these, and try to get some kind of recovery for the people screwed over by those companies. Business is business and business must grow, etc.

  34. sashazur says:

    I feel for people who get stuck in debt due to bad luck, and for them this kind of treatment is unconscionable.

    But for people who just can’t control their spending, it just makes sense that these same people who buy things they can’t afford, will also make poor choices when trying to undo the damage. I don’t have as much sympathy for them.

  35. photoartist says:

    Profit based credit repair companies like this are all crooked and should be avoided at all costs. In fact most debt repair schemes are a sure way to financial ruin.

    There are however many non-profit companies like CCCS (Consumer Credit Counseling Services) that provide a great service to both borrowers and lenders. I have used CCCS before to solve my credit card problems and they were lifesavers. They are respected by most banks and loan institutions, and they negotiate low intrest rates that allow people to pay off debt without major life sacrifices.

    It’s not an easy quick fix. My credit score took an immediate hit when I first signed on. It took over four years to pay off a $15,000 debt to Citibank.

    But when I was finished, my credit score improved dramatically and I was able to purchase my first home at a good interest rate. It does work, but it requires discipline.

    CCCS specializes in credit card debt, not mortgage problems. People who are in over their heads in a bad mortgage must go elsewhere. But if you have credit card problems, I highly recomend them.

  36. aikoto says:

    @abooth: I hate how corporate people slum around just waiting to post responses to this kind of article. The same thing happens to me anywhere I talk about what a rip-off Lifelock is. Their web monitoring arm is HUGE.

  37. jenl1625 says:


    I’ve mentioned this before, but before you go to a debt management company, talk to the credit card issuer and work out a payment plan. Seriously, the last thing they want you to do is to think there’s no way out and default or go with debt settlement. You’d be surprised how willing they’re willing to work with you, and give you a reasonable monthly payment and interest rate.

    It’s been a couple of years, but when my credit card company jacked up my interest rate to something unreasonable, I was surprised by how UNwilling they were to work with me. They wouldn’t give an INCH, much less drop the interest rate a percent or two.

  38. Rectilinear Propagation says:

    There are thousands of people that are barely or completely unable to meet their minimum payment requirements – as you mentioned, paying only the minimum payment with interest rates of 20% or higher will never allow you to satisfy your debts in a reasonable amount of time. If your company was enrolling customers that weren’t in need of the service, that does not indicate Debt Settlement doesn’t work.

    @abooth: BULL

    Being unable to pay your minimum payment requirements does not mean that you are not in need of debt consolidation services. If anything, if you’re in that tight of a spot financially it, it means that you DO need help. Your statement is completely backwards. Only people with extra cash are in need of help with their debt?

    That not only indicates that debt settlement by for-profit companies doesn’t work, it pretty much proves it.

    Unless, of course, by “the service” you really mean “the service in which we rip you off and leave you worse off financially”. But who’s “in need” of that kind of service?

    Please take your shenanigans elsewhere. This is The Consumerist.

  39. PrestonBerryworth says:

    I signed up for a debt management plan years back. They had a $30 monthly donation fee. I asked many times to not donate, finally after they stopped taking my donation, I couldn’t get reliable service from them. I bounced a check and my four credit cards I was paying through them went unpaid. They never informed me that my payment bounced. My bank sent me a letter, and as soon as I got I sent a new check to the debt company.

    The debt managment co. at that time just stopped processing all of my payments, they never told me they weren’t going to work with me anymore. They just stopped. The check I sent them was never cashed and all of my cards went into collections. I always felt it was because I stopped “donating”. Four years later I’m almost done repairing the damage.

  40. polyeaster says:

    This doesn’t shock me, but I think the confessor here worked for a shady agency. Not every agency is that shady. That being said, I don’t like to pay someone to do what I can do myself, and I’ve been successful at lowering interest rates, etc.

  41. heavylee-again says:

    As I read the sickening account of how customers were told one thing, when the contract they signed said another, I wondered if a client could record a conversation in which they were lied to, then sue the company.

  42. abooth says:

    @Rectilinear Propagation: You mis-interpreted the paragraph…

    I was pointing out that there ARE people struggling to pay that need help.. and then pointing out that if the OP’s company was enrolling people that were not in that situation.. that doesn’t mean all the companies do the same thing.

    Please refer your misdirected anger to the correct source.

    Again, as many people have already commented.. this is a case of a bad company, not a bad industry. I do agree there are far too many of this type of company, but steps are being taken at the federal and state level to close these operations.

    If someone does think that Debt Settlement is right for them, I recommend making sure the company they speak with is a member of USOBA and TASC. These organizations require companies to maintain strict service standards.

  43. EndlessMike says:

    I worked at a non-profit debt consolidation agency for nine months after I got out of college, and it was a considerably better deal than this. The OP is correct that you still pay interest with them, but given the choice between paying 6% and 20%+, I’ll gladly take the lower rate. A regular plan was designed to pay off the client’s debt in 3-5 years, depending on a wide variety of factors ranging from the specific companies involved to the amount of debt to be paid off. The big thing is that it’s paying off the balances in full. There’s no settlement, and it doesn’t hurt your credit (or it’s not supposed to, anyway). A few companies may put a mark on the account, but it’s wiped off after three months in a program, per federal law. The people I talked to sound like they were from similar walks of life as the ones the OP talked to. To be completely fair, with the company’s monthly fee (which is also regulated), a lot of people ended up paying more per month than their minimums, but usually not a whole lot.

  44. jeffsters says:

    Agreed, if you have debt issues don’t try to write it off but work within the system with the NON-PROFIT Consumer Credit Counseling service. They have offices all over the country for 1:1 consultation and have been around for many years.


  45. andrew82 says:

    I have personally used CCCS ( and they have been great. They are NPO, got my interest rates down, and I have almost paid off all of the $15k I had across multiple credit accounts. After working on this for about 2 years I owe less than $2k. I should have everything paid off in the next two months. I have been making double and triple payments when I had extra money, and after spending a bit of my tax return for car repairs, I send the total remainder to them, which helped HUGELY. If you are in this process, send as much extra money as you can, it helps.

    Clearly the company that C worked for is not the norm. CCCS has similar information about companies like his on it’s site.

    The most important thing, I think, is to know what you are signing, know what is happening with your money, and research the company you plan on using. Clearly the best advice is not to get into debit in the first place, but if you find yourself there, be smart about getting out. Many folks noted that the creditor will work with you to get the debt paid off, and this is true. What they want the most is money, that’s all. If you cannot work with the creditor, debt management is the next step. If you work with a good company, you will be able to get everything paid off in a timely manner without putting yourself into another bad financial situation.

  46. digitalbrian says:

    There is a old saying “You can not plug a bare chicken” but there is also a counter saying “But you can sure try” debt is no good and hard to get out of, but if you are truly mental stable and firm, you can get away with a lot, just remember sooner or later your debt ends up belonging to some biker gang and they dont play by the rules.

  47. digitalbrian says:

    @EndlessMike: Okay so how are people who can not even pay their minimums supposed to pay even more? if you go to a debt consolidation company it is because you can not pay your payments right?

  48. President Beeblebrox says:

    There’s another hitch in any debt settlement program which hasn’t been mentioned here. Be it for-profit, non-profit, or on your own, the amount of any loan in excess of $600 which has been forgiven (or debt which has been cancelled) is considered income. Some card companies report it and will send you a 1099-C, others won’t.

    It’s easy to envision a scenario where you or your debt manager negotiates, say, 50% of your outstanding card balance of $40,000, resulting in $20,000 of extra taxable income. If you’re paying someone to do that negotiation for you, then you’ve just paid money to pay more taxes.

    This assumes you’re in a tax bracket where this makes a difference. For many, it won’t matter. But if you are in a higher tax bracket, then it could cause some tax pain.

  49. MuCow says:

    I work in the collection industry, and I can tell you there’s some stuff C left out. A settlement company can’t always lower your debts. That decision is solely up to the party the money is owed to…
    A 3rd party collection agency will do everything they can to avoid working with these companies. If the consumer has the extra money to pays their fees, why can’t they just pay more on their debt and skip the settlement company?

    And finally- Any settlement that the settlement companies can get for you, you can get for yourself. We don’t deal with much credit card debt, but what I’ve seen we were able to settle for 40%-50%. The settlement companies do not get better rates. Why would they? They’re taking money that could be going to us, and we’re supposed to treat them better?

    The best thing to do is to work with the collectors. Believe it or not, they usually do try to help. And if you feel the collector is bullying you, talk to their manager. Explain that you are trying to work through the debt but the collector you’re dealing with seems only interested in harassing you, and you refuse to deal with that one collector. Keep track of anything they say that you find offensive, write it down with the date and time. Agencies keep recordings of their phone calls to cover their own asses, with the dates and times you get to cover yours.
    And don’t be unreasonable. These are your debts and your responsibility. You can get settlements, but they aren’t a right. If you act like an ass, you’re not going to get anything.
    If you can honestly only afford $20 a month, that’s great. Do it. But agencies have your credit reports- If you have a $500,000 mortgage and 2 car loans, do you really think we’re going to accept $20?
    And no, we won’t stop calling just because you sent in a small payment. If you work out an agreeable plan, the calls stop as long as you’re current. If you randomly send in a few bucks, you’re gonna get more calls than you were- because now we know where you live, and we’re better off getting an official plan in place.
    If you have money in the bank to use to settle a debt, a collector will bend over backwards to get that settlement approved. Collectors earn monthly bonuses (generally), and if you can provide them with an immediate $2000 toward their bonus, pure greed will get them to go to bat for you.

    Basically, if your debt hasn’t been charged off, work out a payment plan with the company.
    If it has been charged off, work out a settlement or payment plan with the collection agency.
    Do not ignore your debts. It hurts in the long run.

  50. mariospants says:

    Incredible: this incredibly articulate individual was an admin assistant and now works for a bakery? C, you’re missing your calling.

  51. lbhi2005 says:

    I work in the settlement industry and there is some truth in what “c” has said, unfortunately there are companies out there to only squeeze money out of people that are down on their luck. However, there are some good companies out there as well that are actually out to help people, take care of their debts, and get their life back on track.

    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 ( 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. is a good tool to look up any type of company; much better than the independently owned franchises of the BBB around the country.


  52. lbhi2005 says:

    One last thing I forgot to mention, for some people that may not know the difference.

    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.


  53. razremytuxbuddy says:

    Wow. Consumerist and staff, you are providing a service of real value here. And, thanks to “C” for writing this. I was always wary of those debt settlement offers I’ve seen on TV, but this is much worse than I imagined, and very sobering. Another bunch of predators disguised as a help agency, preying on people who are at their lowest point in their lives and don’t know where to turn.

  54. dragonfire81 says:

    I have considered these companies from time to time, but I always thought they seemed to be too good to be true. Good to know my gut instinct was correct.

  55. BrianLlama says:

    In my work I come across a lot of finance guys. One of them was a finance manager at a car dealership (probably not high on the angel list either) and he was telling me just how many people get messed up by these companies. I wrote a warning about it on my credit report article. Customers come in thinking that their credit is just fine because it has been “negotiated” without realizing that whether the companies reduce the amount owed to 0 or not, they still report the amount as UNPAID. To your credit report that’s the biggest black mark you can have short of bankruptcy. So, even if the debt goes away, you and your 416 credit score won’t get a loan anywhere.

  56. lbhi2005 says:

    That would be true Brian….unless you require the creditor to put it in writing.

    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)”


  57. kgb18 says:

    I would really like to clarify some misinformation that is out there. Debt settlement, debt consolidation and debt management are three different things. I think the debt settlement information in the post is good. However, a credit counseling company that puts clients on what is known as a Debt Management Plan is not the same as debt consolidation.

    The term consolidation most often refers to a loan. The individual takes out one big loan, and in turn pays off his or her other creditors. When a client enrolls in a debt management plan, the client does make one payment to the credit counseling agency, but the individual creditor still exist. People lump all of these debt relief options together when they are actually very different.

    I happen to work for a non-profit agency and can offer this advice: Research a company before you do business. Check with the BBB and your state’s attorney general’s office. Also, a good place to find a reputable agency is through the National Foundation For Credit Counseling ( They will direct you to a qualified, non-profit agency in your area.

    Some other things to watch out for:
    1) High fees. A reputable agency should offer services at no or low cost.
    2) Education. An agency should do a credit counseling/budget management session with you before enrolling you in any type of plan. This should last about an hour. They should make practical suggestions to help with your finances and budgeting.
    3) Avoid agencies that pay their counselors a commission.
    4) Avoid agencies that rush you into a debt management plan. The agency should not sign you up on the phone. They should send you an informational packet and give you time to decide.

    Many people can benefit from these services. Unfortunately there are some bad players in the industry, so it’s important for consumers to educate themselves before signing their money over to a company.

  58. prof717 says:

    I may be making a comment that is contrary to popular opinion here, but I know of reputable companies who do debt settlement. I think every industry has honest people and also dishonest people; industries such as cars, real estate, doctors, lawyers, etc. It’s not fair or (educated) to take 1 experience with an obviously dishonest company and label an entire industry. Debt Settlement is becoming more regulated and now counselors have to be certified. As this happens, the bad apples will begin to fall off as it takes more work for them to do business. I would reccomend that people do their homework at the BBB before making a choice in debt settlement and also make sure the company is reputable. I have seen contracts that allow people to cancel at any time and if they have money in their trust account at that time, it is refunded to them. Because I know of people who have benefitted from debt settlement I want to say that we shouldn’t discredit the service itself because of a dishonest company experience. Debt settlement serves a niche in helping people avoid bankruptcy but still pay back a portion of what they owe, maintaining their personal pride and commitment.

  59. thedebtmommy says:

    This is all true. My confessions are nearly the same, as I come from the industry as well, but from management and worked there awhile longer. I worked for a leader in the industry so it wasn’t some fly-by-night shop.

    Debt settlement is not a bad option itself though. It’s just the companies that are offering this service are taking advantage of people in desperate situations. Save thousands by negotiating on your own. Check out for more info on this. Do-it-yourself debt settlement with a personal approach.