Do debt relief programs charge a fee?
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.
Here's a quick rundown of the costs you can expect, according to Investopedia research: Debt settlement companies: Typically 14% to 30% of your debt. Credit counseling agencies: Certain services are free, but a debt management plan typically costs from $0 to $35 to set up, with a monthly fee ranging from $0 to $75.
Based on Investopedia research, minimum debt settlement fees often start at around 15% of the debt. Maximum debt settlement fees are commonly around 25%, though they could go as high as 30% in some cases. See our picks for the best debt relief companies to find some options with fees on the low end.
Generally, there are two different types of fee arrangements (a proportion of the amount of debt resolved or a percentage of the amount saved). Each time the debt settlement company successfully settles a debt with one of your creditors, the company can charge you only a portion of its full fee.
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.
Debt relief services may have a negative impact on your credit score, but that impact may not be as big as you think — and in some cases, it can help your credit. How these services impact your credit depends on the debt relief option you choose.
Here are a few things that happen when you stop paying your debt management plan: Interests rates on credit cards jump back to previous levels. Late fees that were waived may be reinstated. Credit card payments are no longer consolidated into one payment.
Using debt settlement options to reduce debt comes with several risks, including late payments on your credit report, potential charge-offs, settlement company fees, tax implications on forgiven balances, possible scams and the overall risk of settlement offers not working.
| Company | Forbes Advisor Rating | BBB Rating |
|---|---|---|
| Money Management International | 4.0 | A+ |
| CuraDebt | 3.9 | A+ |
| New Era Debt Solutions | 3.8 | A+ |
| Freedom Debt Relief | 3.7 | A+ |
Best overall: Money Management International
MMI has a stellar track record of counseling over 2.5 million people and repaying $10 billion in debt. In 2022 alone, MMI serviced over 46,000 debt management plans for their clients, which resulted in almost $193,000,000 worth of debt repayments.
Can I still use my credit card after debt settlement?
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.
How do I know if I am eligible for debt relief? To be eligible, your annual income must have fallen below $125,000 (for individuals) or $250,000 (for married couples or heads of households). If you received a Pell Grant in college and meet the income threshold, you will be eligible for up to $20,000 in debt relief.
- Opt for debt relief. One powerful approach to managing and reducing your credit card debt is with the help of debt relief companies. ...
- Use the snowball or avalanche method. ...
- Find ways to increase your income. ...
- Cut unnecessary expenses. ...
- Seek credit counseling. ...
- Use financial windfalls.
There is a high probability that you will be affected for a couple of months or even years after settling your debts. However, a debt settlement does not mean that your life needs to stop. You can begin rebuilding your credit score little by little. Your credit score will usually take between 6-24 months to improve.
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.
For example, you may need credit card debt relief if you're struggling to pay off credit card bills. Or you may be interested in debt consolidation if you have several types of debt to pay off. Credit counseling, debt management plans and debt settlement also fall under the debt relief umbrella.
Yes, you can buy a home after debt settlement. You'll just have to meet the lender's requirements to qualify for a mortgage. Unfortunately, that could be harder after you settle debt.
Bankruptcy is your best option for getting rid of debt without paying.
- Make a list of all your credit card debts.
- Make a budget.
- Create a strategy to pay down debt.
- Pay more than your minimum payment whenever possible.
- Set goals and timeline for repayment.
- Consolidate your debt.
- Implement a debt management plan.
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%.
Does debt relief affect your taxes?
In general, if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable. If taxable, you must report the canceled debt on your tax return for the year in which the cancellation occurred.
Generally, experts recommend other debt help options first. But if you decide that debt settlement is right for you, consider National Debt Relief, New Era Debt Solutions, and Freedom Debt Relief first since these companies have the highest customer satisfaction scores.
You can hire a debt settlement company who will negotiate with your creditor for a fee, or you can cut out the middleman and do it yourself. Debt settlement is commonly used when the borrower can no longer afford the high interest on credit card debt, coupled with the amount owed.
National Debt Relief is a legitimate company providing debt relief services. The company was founded in 2009 and is a member of the American Association for Debt Resolution (AADR). It's certified by the International Association of Professional Debt Arbitrators (IAPDA), and is accredited by the BBB.
Once your credit card balance is zero, you can still use it as long as you don't close the account. But if having it open will tempt you to rack up more charges, then closing it may be beneficial.
