How much do debt relief companies charge?
For example, most settlement companies charge a fixed fee between 15 percent to 27 percent of the total amount of enrolled debt. Once you sign the contract and agree to the exact fee structure, then you should be charged the same percentage amount for each debt it settles, regardless of the balance type or amount.
These fees will typically range from 15% to 25% of the total enrolled debt — but can also vary based on the company you choose to work with. It's crucial to weigh the potential savings against the fees incurred — and consider the potential impact on your credit score — before making a decision.
These fees are usually from 15% to 25% of the total debt you enroll in the program, though some reach as high as 30%. Some debt settlement programs charge this fee based on the initial amount of debt you bring into the program, while others charge based on the amount of settled debt.
“Negotiating with a collection agency can be challenging, but it is vital to reach a fair settlement,” Raymond Quisumbing, a registered financial planner at Bizreport, said. “Offering 25%-50% of the total debt as a lump sum payment may be acceptable.
Typically, you should offer 60% or less of your debt amount to kick off negotiations. If you have debt you can't seem to get rid of, you may consider debt settlement. Debt settlement allows you to pay a percentage of your debt in one lump-sum payment to resolve it once and for all.
Completion rates vary between companies depending upon a number of factors, including client qualification requirements, quality of client services and the ability to meet client expectations regarding final settlement of their debts. Completion rates range from 35% to 60%, with the average around 45% to 50%.
Working with a debt management company can result in less debt or a faster payoff — but there are often hefty fees, often up to 25 percent of the debt enrolled, attached to the services. Working with a debt relief company often results in credit damage.
Cons of debt settlement
Creditors are not legally required to settle for less than you owe. Stopping payments on your bills (as most debt relief companies suggest) will damage your credit score. Debt settlement companies can charge fees. If over $600 is settled, the IRS will view this debt as a taxable income.
National Debt Relief is the best overall debt settlement company, according to our research. National Debt Relief's low-cost fee structure and referral service make it a top option for people struggling with debts. Our highest-rated debt settlement companies all charge similar fees, ranging from 15% to 25% of the debt.
Founded in 2009, National Debt Relief has assisted consumers with unsecured debts for 15 years. They work with customers with at least $7,500 in unsecured debt, such as credit cards, personal loans, medical bills, business debts and private student loans. There's no upper limit on the debt amount.
What not to say to a debt collector?
Don't provide personal or sensitive financial information
Never give out or confirm personal or sensitive financial information – such as your bank account, credit card, or full Social Security number – unless you know the company or person you are talking with is a real debt collector.
If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
Debt settlement typically has a negative impact on your credit score. The exact impact depends on factors like the current condition of your credit, the reporting practices of your creditors, the size of the debts being settled, and whether your other debts are in good standing.
Despite the potential downside, settling a debt by making partial repayment is better for your credit (and peace of mind) than neglecting it and leaving it unpaid. If you ignore a debt, the creditor will typically turn it over to a collection department or third-party collection agency.
Chapter 7 bankruptcy: This fairly quick legal process can wipe out your unsecured debts through what's called a “discharge.” Chapter 13 bankruptcy: Chapter 13 can also result in a discharge, but typically only after you complete a 3-5 year repayment plan.
Instead of paying a company to talk to creditors on your behalf, you can try to settle your debt yourself. If your debts are overdue the creditor may be willing to negotiate with you. They might even agree to accept less than what you owe.
While you can still use your open credit card accounts after debt consolidation, consumers should do so with caution. If you do use your credit card after debt consolidation, be sure to pay off your balance regularly.
You can still get a credit card after debt settlement
While it may be difficult to open a new line of credit with a lower credit score, debt settlement does not prevent you from getting a new credit card in the future.
Working with a debt settlement company may lead to a creditor filing a debt collection lawsuit against you. Unless the debt settlement company settles all or most of your debts, the built-up penalties and fees on the unsettled debts may wipe out any savings the debt settlement company achieves on the debts it settles.
Unfortunately, there is no such thing as a government-sponsored program for credit card debt relief. In fact, if you receive a solicitation that touts a government program to get you out of debt, you may want to think twice about working with that company.
Why you should ignore debt collectors?
Ignoring a Debt Collector's Calls and Letters When You're Judgment Proof. If you're not employed or making very little, and you don't have any valuable assets a debt collector can take, you likely don't need to worry about repaying your debts. Debtors like you can ignore creditor calls because you're "judgment proof."
Someone who is trying to limit the impact of settling debts on their credit report, but who must negotiate and fund offers one at a time, will often be looking at an estimated 12 to 24 month credit report recovery time frame. That one to two years starts after the last credit card is settled.
Filing for Chapter 7 bankruptcy wipes out unsecured debt such as credit cards, while Chapter 13 bankruptcy lets you restructure debts into a payment plan over 3 to 5 years and may be best if you have assets you want to retain.
Freedom Debt Relief has an A+ rating with the Better Business Bureau. Freedom Debt Relief is accredited by the American Fair Credit Council and the International Association of Professional Debt Arbitrators. The Consumer Financial Protection Bureau received 120 complaints in 2022 about Freedom Debt Relief.
CNBC Select researched more than a dozen debt relief companies, and New Era Debt Solutions was the best overall, thanks to its (slightly) lower fees and high customer satisfaction ratings. If you have a large amount of debt (think more than $10,000), then National Debt Relief is also a strong choice.
