This is the ninth in a series of posts discussing the most common myths about do-it-yourself debt settlement. In this post, I’ll discuss the myth that a traditional debt settlement approach provides peace-of-mind for consumers who enroll in such programs. What many consumers want is to be able to make a single monthly payment into their debt program, with the expectation that the debt company will handle everything smoothly from there, with little to no involvement required by the client. Consequently, the sales pitch for traditional debt settlement is built around this important need.

In theory, you make a single monthly payment into an “escrow” account to build up funds for settlement, and the company is supposed to handle all contact with your creditors. However, out here in the real world there is a big problem with this approach. I’m referring to the initial 6-month period that leads to charge-off status for your accounts. With most major creditors, the account is worked by an in-house team of collectors up to the point of charge-off, although there are exceptions where pre-charge-off accounts are outsourced to a third-party collection agency. Either way, your creditors do NOT want to hear from a debt settlement negotiator. They want to talk to YOU instead.

How does your debt relief firm handle this problem? The short answer is: They do nothing for the first six months! Needless to say, making payments into the program for six months when literally nothing beneficial is happening is hardly conducive to peace-of-mind! For many people, it represents some of the most intense stress they have ever experienced.

This is a real dilemma for the traditional debt settlement company. If they send out a Power-of-Attorney or a cease communication notice during this initial 6-month phase, it could prompt the creditor to escalate early and place the account with a law firm in the client’s home state. This almost automatically creates a pressure-cooker situation and results in high percentage settlements at 70-85%, or payment programs for the full balance all over again. So a savvy negotiation company won’t send out such triggering documents, and instead they will coach you to lay low and just let the accounts go past charge-off, after which they will intercede with the assigned third-party agencies and try to negotiate settlements on your behalf.

Meanwhile, you will continue to receive a barrage of collection phone calls and scary-sounding notices. As anyone who has ever been on the receiving end will tell you, peace-of-mind goes out the window when the collection bombardment kicks into gear.

To make matters worse, by going the route of traditional debt settlement, you cost yourself six precious months of inactivity, a period in which some of the best settlements become available (at less risk to you legally). So virtually nothing gets “taken care of” during that very important initial period. After that, creditor contact on the part of a debt settlement company is still minimal – they generally wait until you have enough money built up in your account for them to start making offers.

Myth busted. The “just make one payment per month and we’ll handle everything” approach sounds great in theory, but it only adds to your stress rather than reducing it. Little or no creditor contact takes place for the first six months, and after that, usually only when you have money to settle with. Meanwhile, it’s open season on you, with all the usual collection actions taking place, including potential legal action. Instead of waiting six months to start, it’s far more effective to tackle the project on your own, so you can take advantage of the settlement opportunities offered directly to consumers on accounts approaching charge-off.