Recently I confided in a debt industry insider(and personal friend) regarding some of my articles on this blog. By his response I could tell that they were indeed essential reading material. And while he was giving me feedback he was kind enough to share a very personal testimony which could be amazingly helpful for anyone with massive debt and thinking about debt settlement. You see, not only has he been a licensed debt collector near Aurora, Colorado for 15 years, he’s been on the other side of the fence due to a really messy divorce. It turns out that while he was working hard to provide for his 3 kids, his wife fell into the old adage, “When the cat’s away, the mouse shall play.” After finding out about his wife’s infidelity his life went downhill and eventually the marriage fell apart due to irreconcilable differences.
As with most marriages, the mortgage was jointly signed…”OUCH!”. On top of that, the couple had a double whammy with the extra burden of an $80,000 home equity loan. Because of the complexities of the divorce and a downward turn in the collection industry, my friend was unable to make monthly payments. His house ended up going into foreclosure and he was left with having to take care of the $80K home equity loan plus other debts totaling $100K.
Having worked in the industry for so long, he decided to take care of the debt right away and attempted settle with his lenders directly. All of them agreed… except one. Keep in mind that this wasn’t surprising because the debt in question was relatively new. My friend knew that his next move was to default on his payments for the next 120 days and then initiate contact again. After that long period of knowledgeably deflecting the harassing phone calls from debt collectors, the hold out bank finally agreed to settle. The end result was one settlement payment of $7,000 which was divided up and distributed to all of his lenders.
Because my friend avoided bankruptcy, 3 years later he now has a FICO score of 713 out of a possible score of 800. This blew me away when I heard it. But even more surprising was the fact that he dealt with his lendors directly without going through a debt settlement company. I asked him why he chose this option and this was his response.
Debt settlement companies receive your monthly payments, put them in escrow and HOPE they will be able to settle for less than principal balance at a later date. The issue is they cannot stop compounding interest, legal costs, and/or legal actions while the money is collecting in escrow. In addition, they typically collect a “management fee” for doing nothing while collecting escrows. DSCs typically capitalize on the ignorance of others. A person doing their own debt settlements will be much more profitable if they understand the credit industry, legal processes, tax implications, and are skilled at negotiations.
Coming from a man who has been through the fire and come out like he did, I respect his point of view. But I made it a point to ask him about the risk of waiting too long during the 4 month long default period. After all, there is a possibility that one or more of the lenders may decide to sue if too much time has passed. He agreed that this could be a problem and said that those who don’t have debt industry experience may not have a favorable result if they try to settle directly.
It’s my hope that none of this blog’s readers end up in a position where they have to think about debt settlement. If you are in financial dire straights now it might not have to get to that point. My friend strongly advocates quickly contacting a debt consolidation/debt management company that can smooth out problems before a debtor’s situation becomes unbearable. This is the choice that I recommend for those who want to avoid a living hell of harassing phone calls and letters. Financial redemption draws nigh easier to those who quickly seek it out.