[Infographic] Not All Debt Programs are Created Equal: How Debt Settlement Compares to Other Debt Solutions

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Century Negotiations, Inc., backed by decades of experience, is one of the leading providers of Debt Settlement Programs. CNI has just released an infographic, based off of an AFCC report from earlier this year, comparing Debt Settlement to other forms of consumer debt relief; the infographic reveals which program comes out on top, as well as reveals some staggering statistics about our national consumer debt.

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Based off of the numbers from the report, it’s clear that debt settlement is the winning contender in this challenge in terms of the time it takes to complete the program and the total cost of the program.

Century Negotiations was founded by Dave Leuthold in 2003 to specialize in debt settlement and negotiation services, and since then has negotiated over $600 million dollars of debt for their clients. Earlier this year Dave, co-founder of the American Fair Credit Council (AFCC), helped AFCC commission a report detailing the evolution of the debt settlement industry as well as comparing debt settlement/negotiation to credit counseling and debt consolidation. In CNI’s new infographic, details revealed from the AFCC report help shed light on why debt settlement services may be the best solution for a consumer seeking debt relief.

With the total consumer debt in America surpassing $2.84 Trillion dollars (June 2013), it’s no wonder that debt relief programs have built-in long-term business from our indebted nation. This figure comes out to just under 16K per household in consumer debt! Included in this, the average consumer has 3.7 credit cards and $8,220 in debt per card that carries a balance. It’s not surprising, then, to know that today consumers have about 5 billion dollars of enrolled debt in just debt settlement alone.

Various types of debt relief are available to consumers seeking to climb their way out of the pit of debt. In the 2012 report commissioned by the AFCC, entitled Options for Consumers in Crisis, the Council sought to shed light on the evolution of the debt settlement industry, how it relates to other forms of debt relief, and ultimately what the benefits are for settlement/negotiation by comparison.

On a very simple level, here’s how three of the programs break down:

Debt Settlement: A service provider negotiates the settlement and final discharge of the client’s unsecured debt for less than the full amount owed.
Debt Consolidation: Entails taking out one loan to pay off several other loans.
Credit Counseling: The main focus here is to reestablish credit by creating a debt repayment plan covering the full amount owed.

With this in mind, the report looks back 10 years ago to the beginning growth of consumer debt settlement programs. Prior to 2003, debt settlement programs were primarily available just for commercial enterprises. Then in 2005, The Bankruptcy Reform Act was passed making it much more difficult and expensive for a consumer to qualify for bankruptcy. This is where the debt settlement industry really began to take off.

Traditionally, the “advanced fee” model was the reigning debt settlement business model. Fees were based on a percentage of the debt a client enrolled into the program. Most companies charged a fee of 15%. With this program, in order to see the first reduction in one’s debt, the consumer had to be on the program generally at least 6 months. Despite this, there were still clients who decided to terminate their accounts early, thus losing money and resulting in a picture of the debt settlement industry that often was not consumer-friendly.

As a result, an investigation was begun by the FTC, who eventually issued a ruling in October 2010 which lead to a ban of the “advanced fee” model for the settlement companies and required to be put into effect the “pay for performance” model. That model provides that a fee could be earned only upon settlement of a debt, shifting the risk entirely to the debt settlement company. Because of financial burden this placed on a debt settlement company, nearly 70-80% of the companies in the industry either stopped taking on new clients and/or went out of business completely.

Despite these industry changes and the industry contraction following the ruling, the debt settlement industry has since seen reasonable gains in total enrollment. In fact, Quarter 4 of 2012 saw higher numbers of client enrollment compared with the past 6 years in the debt settlement industry.

So how does debt settlement/negotiation compare with other solutions such as consolidation and counseling? Based off of the numbers from the report, it’s clear that debt settlement is the winning contender in this challenge in terms of the time it takes to complete the program and the total cost of the program. The infographic contains much more specific information about the numbers, including a case study which examines how long it would take to pay off the average household debt under each option.

Based just outside of Pittsburgh, PA, Century Negotiations is servicing over 13,000 clients with over 80,000 accounts representing over $300 million of debt. Backed by decades of experience CNI continues their mission to provide high quality negotiation and settlement services in their efforts to free their clients from burdensome unsecured debt.

View the full infographic by clicking here.

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