Are Debt Settlement Companies Worth the Cost?

Texas Bankruptcy Attorney Urges Caution

Video Transcript:

David Shuster:

People are looking for solutions, and these companies are offering it to them, but the question is, do they work? Is it a good idea? That's what we're looking at here today.

Rob Rosenthal:

If you've got more debt and you can handle, maybe you're considering using a debt settlement company, but is that a good idea and what are your alternatives? We're gonna find the answer to those questions and more right now, as we Ask the Lawyer. Hi again everybody, I'm Rob Rosenthal with AskTheLawyers.com, and my guest is Dallas attorney David Shuster. Wanna remind you right off the top: If you wanna ask David questions about your situation, it's easy to do, go to askthelawyers.com. There's a button at the top of the page says, Ask a Lawyer. You click there, that'll walk it through a very simple process, or you can call the phone number that will be on the screen when we talk to David. David, good to see again. Thank you for making some time to help us out.

David Shuster:

Yeah, thanks Rob, as always. Yeah, it's great to see you.

Rob Rosenthal:

So let's just start with maybe a little bit of definition, information. Debt settlement companies, what are they and what do they purport to do for consumers?

David Shuster:

Yeah, thank you, Rob. Well, what happens is when someone realizes that they need some help with their mainly unsecured debt, and so the debt settlement companies purport to help you with that. Just pass it over to us, this company, we're professionals, we know what we're doing, all you need to do is tell us how much debt you have, and we'll take a set amount out of your bank account every month.

Rob Rosenthal:

Okay.

David Shuster:

And ultimately, they'll start to take that money and they have... It's a fee structure, so you might be dealing with a company in Arizona or Michigan or California, and so if you're in Texas, like I am in the Dallas-Fort area, you may not even be set up with a firm or the company that actually knows how the Texas laws apply, which is very concerning, and the big impact is people are looking for solutions and these companies are offering it to them, but the question is, do they work? Is it a good idea? That's what we're looking at here today.

Rob Rosenthal:

Well answer those questions. Do they work? Is it a good idea?

David Shuster:

Well, I'll tell you Rob, by and large, no. I'm not saying all debt settlement companies are bad, but mostly it's a solution to a problem, if you have the money and you're not concerned about how much you pay back, if you wanna pay back close to 90%, 80%-90%, sometimes more of your outstanding debt, then you just need a company to take it over for you, and you have $60,000 of debt and you don't have a problem paying $1000 a month to a debt settlement company, because when you have that outstanding debt that you were paying on... The minimum payments were as much as $1800 a month, so you'll just pay this debt settlement company less than you were paying all the cards when you were current on them, and then in so many years it'll be resolved, but as time goes on and you're paying this debt settlement company money to really just send out cease and desist letters so they don't call you... The question is, how effective is it and how much are they charging you? Because a lot of times the fees are 15% to 25% of the outstanding debt, they base the fees that when I looked around at them, the fees are based on the total outstanding debt, which is a little troubling. If you have $60,000 outstanding credit card debt then your fees, to a debt settlement company will be as much as $12,500, and that's a lot.

David Shuster:

That's a lot to pay. I can tell you right now, even if you have credit cards that have been turned over to attorneys, you're not gonna be paying me near that if you want me to resolve your $60,000 worth of debt, so it's better to use a local attorney, it's cheaper. You'll have someone there, if you get a letter from an attorney, if you get a lawsuit, you'll have an attorney to handle it. A local attorney offers also better settlement percentages. Quite frankly, you have a law office that is going to beat the creditors down and get you a better percentage. On average, we look to have a 50% on average, sometimes it's a little bit more, sometimes we get deals for far less... It just depends. Things change over time too, as a creditors sell debts off and it changes hands, you just send the new letter that you got in the mail to us and we'll respond to it. We'll keep a spreadsheet, it has your total outstanding balances, and we'll answer all your questions and we bill basically, as any attorney would bill hourly, so it's not set up as like, Oh well, if you have $100,000 worth of debt, then your fee is gonna be $15,000, which that's 15%, that would be the least amount you'd pay a debt settlement company if you have a $100,000, worth of debt $15,000. With me, it's not gonna be that high, and far better service.

Rob Rosenthal:

A little bit of research that I did, David, it seems like with some of these companies, not only are you paying the fee, which can be a very high fee, but it can end up not helping your credit rating or even hurting your credit rating after it's all said and done. Is that... Have you seen that?

David Shuster:

I'm glad you brought that up because yes, your credit is as you're not paying is just continually getting dinged monthly, so the process of debt settlement requires that you first default on your debt if you're not already, so you will suffer negative consequences whether using an attorney or a debt settlement company. But yeah, it's a long drawn out process, and so usually the process depends on the timing of the creditors and how quickly they're willing to give you deals, but yeah, that's a really big point to consider is that until you actually do start paying on some of this debt and settling it, your credit, it's gonna be a while before it starts to pick up, and I'm also a bankruptcy attorney. That's my primary practice area. So the good news is, that's something that we can always talk about, we can mention to a creditor that that's our alternative if you are not gonna give us a good deal, and it's a very valuable tool in the tool chest, a bankruptcy is, even though a lot of folks would do the debt settlement instead because it offers more control to the client and also the ability to earn the higher income and not have to pay everybody back 100%.

Rob Rosenthal: 

And explain to me the difference then between debt settlement and debt consolidation.

David Shuster:

Yeah, I think, yeah, that's a good point too. Debt consolidation just implies that you're putting it all into one payment, so a lot of times people think of debt settlement as debt consolidation 'cause they're making one payment to a debt settlement company, but really they're piecemealing out the payments. Debt consolidation implies that you're gonna get a loan to pay off all of the debt and then just pay off that one loan, so you've consolidated all of your debt and to now one new loan, and oddly enough, these debt settlement companies will loan you that money and they turn it themselves into a creditor and say, Okay, client, we'll loan you the $45,000 or whatever it is, to settle this debt, and it'll be a 12% interest loan and we'll settle with the creditors and will loan you the money to do that, and so then you're trading off this new payment you're indebted to them, but it implies this wrapping it all into one loan, and the bottom line is a lot of it sounds easy, it sounds quick, it sounds like a solution. And that's what people are looking for, is a solution.

David Shuster:

But you gotta read the fine print, you gotta find out how much it's gonna cost you in the end, what is your average net savings, I mean you're talking about your household dollar that you work hard for every day, okay. You don't wanna just turn over a big percentage of that to a debt settlement company. If you have a couple of small debts, you can do it on your own, but if you have several and you have ones that are more than a year or two late, it's probably a good idea to get an attorney, you'll save money in the end.

Rob Rosenthal:

And David in your experience, if you had clients who come to you after first talking to these debt settlement companies and maybe they are surprised to find out that it's not what they thought it was?

David Shuster:

That's exactly right. They've either talked to some and have said it, and they let us know that and we talked to one. The payment was gonna be this high, I'm sure glad I called you now. There is a big number of them that have been on debt settlement programs, because again, people, they're looking for solutions. You're talking about good people here, people that are trying to get out of debt good people, especially with the circumstances that happened with our economy in the past couple of years, people are having to utilize credit card debt more to make living expenses. And so these good folks are just looking for answers, and so yeah, they come from having paid a debt settlement company $700 a month for 12 months, and then they come to me and say, I sure wish I wouldn't have done that. But they still have a lot of outstanding debt that we can now resolve, and a lot of times to take care of it with the Chapter 7 bankruptcy that just stop all these payments and discharge everybody.

Rob Rosenthal:

What if they wanted... Maybe they've looked around, maybe they've seen the ads, David, and they go, Well, that... debt settlement sounds like the solution to my problems. Does it cost him anything to call your firm and go, Hey, just tell me what my options are, what can I do, can they just get like in an initial consultation to figure out where they should go?

David Shuster:

That's a good point, Rob, if someone's watching this video, it means they're looking for information. If you're in Texas, particularly in the Dallas-Fort area, give me a call, you'll talk to... You might talk to my legal assistant first, maybe my associate attorney or myself, yet it's a free telephone consultation for anybody that's asking about debt settlement and bankruptcy, so you're already looking for information by watching this video, so take the next step to call somebody real quick, and give them the rundown of your situation, only just makes sense, just better information, it's more specific to your situation.

Rob Rosenthal:

Really good information from you as always, David, thank you for making some time to help us out. I do appreciate it.

David Shuster:

Yeah, thanks Rob. I appreciate it.

Rob Rosenthal:

That's gonna do it for this episode of asked the lawyer. My guest has been Dallas attorney, David Shuster. I'll remind you, if you wanna talk to David, ask him questions of your own, go to askthelawyers.com, there's a button at the top of the page says Ask a lawyer, very simple form to fill out right there. Or you can call the number that's on the screen. Thank you for watching. I'm Rob Rosenthal with Ask the Lawyers.

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