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Introducing Debt Compromise!
newdebtrules
If you look closely you just may see the door beginning to close on the traditional Settlement industry. That door is being closed by a combination of the rising number of consumer complaints against settlement companies, and the related regulatory proposals introduced by the Federal Trade Commission. However, as we all know, when one door closes another one is opened. Fortunately in this instance the new door leads to a more effective and consumer friendly relief service known as Compromise.
While Compromise may be a new concept in the relief industry, its roots stem from the very same Settlement industry it is poised to take over. In many ways Compromise is an evolution of the traditional Settlement service model. But don’t be fooled by the fact that Compromise bears resemblance to Settlement because Compromise is significantly better. You can think of Compromise as the next generation of Settlement, where the newer generation has improved upon the previous one by increasing its efficacy as a relief option, and eliminated most of the problems that plagued the traditional settlement service model.
To understand Compromise it is helpful to understand the history from which it was born. Settlement (i.e. the act of a debtor and a creditor settling a for a reduced amount) is a legitimate relief strategy. Every day thousands of debts are settled by mutual agreement between a debtor and a creditor, and debtors realize significant savings in the process. The problem with settlement is not the actual act of settling a debt, but rather the service model or business model that was created by third parties to assist consumers with the settlement process. I will refer to this as the traditional settlement service model.
Under the traditional settlement service model, consumers hires settlement companies to perform the majority of the settlement services (i.e. handle creditor relations and negotiate settlements) and the consumer pays a fee for those services. While there is nothing inherently wrong with this service on the surface, the problem with the traditional settlement service model is that the vast majority of settlement companies charge the lion’s share of their fees at the beginning of the service, before actually providing any really effective services. This “front-loaded” fee model makes it very difficult for the majority of consumers to have any real success due to the fact that very little money is available early in the process to actually make settlement payments to their creditors.
It is not uncommon under the traditional settlement service model for a consumer to make six months worth of payments into the settlement program, only to find that more than 80% of those payments were deducted by the settlement company’s fees, and the consumer has little to nothing actually set aside in their account to pay their creditors. The result? Dissatisfied creditors, significant collection activity, negative reporting on the consumer’s credit report, no real progress in actually getting the consumer out of debt, and in some cases, lawsuits that left the consumer worse off than when they started.
This ineffective model has made it impossible for most consumers to be successful, resulting in a significant volume of consumer complaints. Regulatory bodies like states Attorney’s General Offices and the Federal Trade Commission have taken notice of this rising tide of dissatisfied consumers who have exerted increasing pressure on the industry to either disappear, or change. Considering the sheer numbers of consumers struggling with debt, the business opportunity was enticing to simply ignore, so an evolution of the traditional settlement service model was inevitable, and it has now evolved into Compromise.
As was mentioned previously, consider Compromise as an evolved form of Settlement without most of the downsides of Settlement. While Compromise does bear resemblance to Settlement, it also has one critical difference. That critical difference is the compromise that the third-party relief company must make to ensure the consumer’s success in settling their debts. More specifically, whereas under the traditional settlement service model the vast majority of settlement companies take their fees prior to rendering service, handicapping the consumer’s potential for success, under Compromise the relief service provider charges the majority of their fees at the end of the service in relation to how much money they actually save the consumer.
Let me clarify that with an example. Let’s assume a consumer has $10,000 in credit card and they are investigating their relief options. Under the traditional settlement service model, the settlement company charges a fee equal to 15% of the total amount of enrolled into the program. In this example, 15% of $10,000 equals $1,500. In addition, recall that the problem with the traditional settlement service model is not the fee itself, but how, and more importantly when, the fee is assessed. Under the traditional settlement service model the $1,500 fee usually comes out over the first 10 months or so of payments, with the majority being due in the first three months, before any real services have been performed or results achieved. In addition, the fee is non-refundable regardless of whether or not any actual savings are ultimately achieved.
Under Compromise, the compromise service provider also charges a 15% fee, however, that the fee is equal to 15% of the amount of money the compromise service provider is able to save, based on actual savings. This is referred to as a “back-end” or “performance based” fee model. They don’t charge a fee until they have actually obtained results. Let’s assume the compromise service provider is able to settle the consumer’s $10,000 for 50%, or $5,000 (a common result). The compromise service provider saved the consumer $5,000, and therefore the fee charged to the consumer would be $750 (i.e. $5,000 x 15% = $750). Not only is the compromise fee half of what is charged under the traditional settlement service model, but the fee is only charged after the savings results have been achieved.
Clearly Compromise is a better alternative to traditional Settlement, and consumers should expect to see more and more companies offering performance based fee models. In this discussion we have only discussed the advantages in terms of fees, but Compromise offers additional advantages over Settlement that will have to be discussed in a subsequent article. For now, consumers seeking relief should understand an alternative to traditional Settlement exists, and Compromise is clearly the better option and one that clearly has the consumer’s best interests in mind.
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