Debt manager put to the test
BY TERRY SAVAGE Jun 28, 2010
A screenshot of the website for New Era Debt Solutions, which boasts that it has settled over $153 million of gross debt.
Updated: May 3, 2013 12:14PM
Over the years, I have written several columns about the dangers of debt settlement firms. My main complaint is that they are expensive, unregulated and may cause more problems for your credit than they solve.
Most of these companies suggest you stop paying your credit card bills -- and instead divert that monthly amount to a set-aside account. When you've accumulated enough money, they'll take their fees -- and then they'll try to negotiate a settlement with your creditor for less than the full amount you owe.
There's no guarantee of a settlement, but they get their fees. In the meantime, your account becomes seriously delinquent, your credit is further ruined -- and the card issuer may even get a judgment against you, and garnish your wages.
The sad fact is that with most of these companies, the debtor never accumulates enough cash to make an offer to the card issuer -- but the negotiating company gets paid anyway.
An exception to the rule
After writing a column on this topic, I received a call from Alex Viecco, vice president and co-founder of New Era Debt Solutions, based in Camarillo, Calif. Viecco spent some time trying to convince me that his company was different, and that they really do have a track record of helping debtors reduce their obligations. Plus, they only collect most of their fee when a debt-reduction deal is consummated.
Viecco claimed that New Era has put thousands of people through this program, and that their clients wind up paying an average of only 44 percent of the "enrolled balance," not including fees. Its website boasts that it has settled over $153 million of gross debt.
I still wasn't convinced. Plus, I must admit to a bias that says if you took on the debt, you should make every effort to repay it in full, instead of getting out of it.
A profitable coincidence
By strange coincidence that very same week, I received an e-mail from a man called Peter, who explained that he had roughly $27,000 in credit-card debt and couldn't even make the minimum monthly payments. However, he was expecting a tax refund of approximately $10,000. Peter wanted my opinion on using a debt negotiation service.
I gave him my negative views and warnings, but I also remembered my recent conversation with Alex Viecco. Would he be interested in experimenting? I offered to put him in touch, while warning him of the dangers to his credit should the process go awry.
After discussing the process with New Era, Peter decided to go ahead with the debt negotiation program. With the permission of both, I followed the progress over the next few months. Of course, this wasn't a fair test of the service, because the company knew that I would be monitoring the results.
The results were quite a surprise to me, to say the least.
Peter entered the program with $26,700 in debt on one credit card. He initially paid $800 as a retainer fee (of which, $400 was eventually returned to him).
New Era obtained a settlement that required Peter to pay only $7,185 to the card issuer, and an additional $3,605 in settlement fees, plus the $400 reduced deposit.
Peter saved -- or, more accurately, avoided paying -- $15,510. His credit report will show the debt as "settled for less than full balance."
His reaction: "What a relief! I was fairly skeptical, and I know you were too," he told me. "But the beauty of these guys was they didn't take any money up front. It took them several months but they were right in saying that you have to wait a while to get a good settlement."
So it worked for Peter -- because he had the cash upfront to make a quick offer to the card issuer.
New Era says its program works even for those who must accumulate the cash, or have debt that has been sold to a collection company.
This is NOT an endorsement of New Era, or of any other debt settlement firm. Nor is it a moral judgment about the issue of dumping out of your obligations. But to be fair, I had to tell this story. I trust my readers to judge for themselves. And that's The Savage Truth.
Terry Savage is a registered investment adviser and a co-host of "Monsters and Money in the Morning" on WBBM-Channel 2 from 5 to 7 a.m. weekdays. Post questions on Terry's blog: terrysavage.com and blogs.suntimes.com/savage.