[Dr D]

I enjoy watching a good claw hammer fight as much as the next guy. On my scorecard I would give the win to DrJizzle. On previous posts I have mentioned Consumer Credit Counseling Service, a subsidiary of Money Management International, which is a NON-PROFIT community service organization. In my years of doing mortgages I have referred a fair number of people to CCCS, with satisfying results. My question for the people who work for Debt Settlement companies is: how do the consumer paid fees charged by the FOR PROFIT companies compare to those charged by a non-profit such as CCCS? I would imagine that the splashy TV ads aired by the for-profits are not cheap. As yet I have had no response or direct comment to my past inquiries.

[DrJ]

Well, obviously there are more fees paid by the consumer in the for-profit settlement companies. But what you have to look at is the total cost to be debt free.

If you had $30,000 in debt and I said that I could make that debt disappear if you paid me $10,000, would you do it? Sure, the $10,000 is more than anyone else is charging but I'M making the debt just go away... so your total cost is only $10,000, right?

So looking at CCCS, you cost on $30,000 would be $30,000 plus maybe... 10% interest, plus a $30 "donation" each month, paying 2.5% of your debt for a payment on a 4 yr 1 month program...

$30,000 (debt)
$6,644 (interest)
$1,479 (donations)
------------------
$38,123 (total cost)

Now, with debt settlement... $30,000 total debt... lets say a pretty tough mix of creditors so 50% settlements plus the standard 15% in fees.

$15,000 (50% of the total debt)
$0 (interest paid)
$4,500 (15% fees)
-------------------
$19,500 (total cost)

AND... where 2.5% of the debt ($750, in this example) is a pretty LOW payment for CCCS (which would result in a 4 yr 1 month program), the SAME payment in debt settlement would result in a 2 yr 2 month program!

So, the numbers ALWAYS work out better... that's no comparison... the nly real deciding factor is the risk factor. Can one afford a short enough program to outweigh the risk factor? If not, settlement may not be the way to go... unless of course, they are judgement proof :D

[kjackson]

CCCS though typically non-profit are still funded. It's called fair share and is a percentage of the amount collected for the creditors. It use to be as high as 15% but has been cut drastically recently. I've heard the number is more around 8-10%. Also, many cccs companies charge a monthly maintenance fee of between $20-$39 a month (but not all charge a monthly). It's hard to compare since not all debt settlement companies have the same fee structure. Some require an up front payment that can be as high as 8-10% of the debt and then a percentage of what's saved. Where I work it's a flat 15% of the debt. So speaking on what my company does the back end "fair share" for cccs can sometimes be as much as 20% of the debt when dealing with lower debt loads and as low as 12% or the debt for debts over $100k. Either way you look at it someone gets paid which is fine. I personally would not want a volunteer handling my finances. I hope that helps with your question.

[Superior]

I would imagine that the splashy TV ads aired by the for-profits are not cheap.

This is true. Advertising is by far the largest expense for any for-profit company. When you weigh the income against the payouts, you're lucky if you break even. The hardest part is targeting your market, and if you miss your target then you get loads of people either looking for loans or needing help with their taxes. There is so much prequalifying for each individual client, and many people that call in are better off using another program for their debt help, such as CCCS or consolidation. We will actually point our clients away from our services if it benefits them financially, which is more than I can say for most settlement companies.

With so many factors to consider when bringing accounts in the door, you have to pay higher amounts for the specific market targeting. Unless you want to just run TV ads and bring everybody and their dog into your program whether they need it or not. Fine by me. I get a lot of clients from other CCCS, consolidation, and settlement companies that do a lousy job.

[Dr D]

I would like to thank all the people who responded to my questions. We all agree that the motivation for a creditor's willingness to settle for less than what is owed, is: that it is better to get 50% of something than to get 100% of nothing. I would imagine that the personnel at CCCS have the same tools at their disposal as the for-profit people; the question being, who is more proficient at using those tools? Correct? My as yet unsubstantiated belief is that with their lower costs, the non-profits should be able to leave more money on the table that can be distributed to the creditors, thereby reducing the total expenditure by the client.

[DrJ]

Im not sure I am following what you are saying here but if I am...

You're saying that CCCS charges less fees... so if they negotiated the debt instead of just reducing the interest, then they could offer a cheaper service to the client??

No, not at all. You see, just because CCCS is a "non-profit" doesn't mean that they work for free. That little donation is not how they make their money... that's just a bonus. Like kjackson said, they make their money on the back end... through "fair share" payments.

Creditors pay credit counselors these fair share payments so that they will sign up clients to pay 100% of the debt, plus the agree (reduced) interest rate.

If they credit counselors negotiated the debt, rather than sticking to the agreed upon plan, they would not get their "fair share" and they wouldn't make any money.

And no matter how "Saintly" "NON-PROFIT" companies try to make themselves out to be... they are not working for free. They get paid for their work just like the rest of us do.

[kjackson]

I don't know anout elsewhere in the country but here in Southern California the t.v. adds are all credit counseling ads. I have yet to see a debt settlement ad.

[Superior]

I don't know anout elsewhere in the country but here in Southern California the t.v. adds are all credit counseling ads. I have yet to see a debt settlement ad.

It is rare. I actually haven't seen one yet, but I've heard of other companies running them. We've found that because of the level of market targeting that needs to go into the program that it's better to target keywords in search engines. The trick is to avoid a bunch of calls and leads full of people looking for tax debt relief, student loan debt help, and wanting to refinance their car or house. Although we have affiliates that we can direct this type of traffic to, it doesn't help us directly.

[Dr D]

DrJizzle; so what you are saying is that CCCS's prime goal is to sign up consumers in a plan to pay off 100% of the debt, even though interest charges might be reduced or waived altogether. Correct? I have always been aware that CCCS has received financial support from the creditors. If CCCS's purpose is to get the best deal for the creditor, rather than their client (the consumer), I would consider that to be an egregious conflict of interest; agreed? I think I will contact CCCS and ask them that question point blank. It would be sad for me to find out that my faith in CCCS for these many years has been misplaced ( just like finding out that the Easter Bunny has died).

[Superior]

DrJizzle; so what you are saying is that CCCS's prime goal is to sign up consumers in a plan to pay off 100% of the debt, even though interest charges might be reduced or waived altogether. Correct? I have always been aware that CCCS has received financial support from the creditors. If CCCS's purpose is to get the best deal for the creditor, rather than their client (the consumer), I would consider that to be an egregious conflict of interest; agreed? I think I will contact CCCS and ask them that question point blank. It would be sad for me to find out that my faith in CCCS for these many years has been misplaced ( just like finding out that the Easter Bunny has died).

You are correct. CCCS programs have the best interest of the creditor in mind. They are funded by the creditors, work for the creditors, and that's the bottom line. I could go on for days about the horror stories I hear from clients that use CCCS and end up NOT out of debt. CCCS has the lowest success rate of any debt relief program available, other than blatant scams. Sorry that this has struck such a hard blow at your faith in these programs, but there you have it.

[DrJ]

Yes, Superior is dead on. Credit counseling is funded by and works for the creditors. And that really is the truth.

Credit counseling was started some 50+ years ago by the banks and financial institutions to help those who couldn't make their monthly payments and save them from bankruptcy.

It wasn't meant to be a conflict in interest... but more so, your "friendly creditors just trying to help you out" (lol). Many people feel it is a conflict in interest but that is in part due to the misrepresentation of these companies.

Credit counseling can work if you have the right company. I have suggested credit counseling and enroll quite a few people into it myself. I can't say that it is the best thing for people but for some people, it is. Like I said, it depends on the situation.


DrD... being in the mortgage world, what is your take on the effects of CCCS vs debt settlement?

[kjackson]

We also target internet services for a large portion of our clients. Our view on staying out of TV and radio is pretty basic. We only want clients that need us and that qualify. TV and radio could open up the floodgates of every Tom **** and Harry that just wants to skate out on their debt. I routinely turn down a good 60% of those who apply. Our industry has enough of the bad guys and we need to try and represent the reality of debt settlement as program for those who truly need it.

[Dr D]

Dr Jizzle: In the past we often used the payment history provided by CCCS to show that the borrower was now creditworthy, even though their credit scores had gone to hell in a handbasket. While a person is in CCCS their scores will suffer because the creditor is receiving less than the scheduled payment, and as a consequece the account continues to show in a delinquent status (because of the automated reporting). On government loans (FHA and VA) where the human underwriter is allowed to over rule the computer, this has been useful. On Conventional loans which are very FICO driven, and the human underwriter is limited in their ability to over rule HAL (as in 2001), CCCS has been of limited value.

In cases I have seen where a Borrower has been offered a lesser settlement amount, the creditor has demanded full payment of the lesser amount NOW, not piecemeal. So you guys have the ability to get the creditor to settle for less, AND accept monthly payments, correct? It would follow that if the total funds due from the client were less; the repayment period would be shorter; and the FICO healing process could begin sooner.

As soon as I confirm some of these things with CCCS, I shall get a very large crow, and eat it live on this web site.

[DrJ]

Not typically. Usually, the client is saving the funds to settle with. So the actual settlement isn't made until there is enough money in the clients account to pay it off. However, in some cases, "structed settlements" can be made. This is where a settlement is offered with the ability to pay it off is payments. These are usually higher settlement amounts than a lump sum settlement.

[infoseeker]

Whatever you do, don't use Lawgistix.

They have changed names 3 times in 2 years so they can keep ripping off people. From 2nd chance credit to forecast financial to lawgistix to some new ascerio name.

They said they would reduce my debt by 60% guaranteed, now I have 12 judgements and I am being garnished.

They don't return calls, they are rude and if I were you I would stay far away from them.

They took my money and never did anything.

Don't believe me? Now they have a do it yourself program they charge 1000 for.