How Much Does a Debt-Relief Program Cost?

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Expert debt-relief programs specialize in reducing consumer debt for a fee. How much does a debt relief program cost? Up to 25% of the debt enrolled, depending on the firm, your state, and your debt.

Learn more about the costs involved and alternatives to debt relief programs.

What Is a Debt Relief Program?

A debt relief program can help you pay off debt by negotiating lower balances with your creditors. After enrollment, you'll stop making payments on your accounts and start saving money in an escrow account. The goal is to save up enough to settle your accounts. That is, you pay less than the balance due and the creditor forgives the remaining balance.

Negotiations can't start until you've saved enough in your escrow account to offer a settlement. When you've accumulated enough, your debt relief counselor will begin contacting creditors to work out a settlement. Once there's an agreement, the creditor is paid from your escrow account and the process repeats until your eligible accounts are settled.

Some creditors won't work with debt relief companies and others may not offer settlements at all. Results with a debt relief program vary and aren't guaranteed.

How Much Does Debt Relief Cost?

Debt relief companies charge consumers in one of two ways: a percentage of either the debt you've enrolled into the program or the amount of negotiated savings. You can't be charged a fee until the debt relief company has settled an account. Even then, you'll only be charged a portion of the firm's full fee based on the amount of debt that's successfully settled.

Here's a breakdown of the services and costs you can expect with a debt relief program.

Category   Typical Cost
Initial consultation $0
Enrollment  $0 
Program fee  5% to 25% of the debt enrolled, depending on the firm and your state 
Escrow account monthly fee  Varies—paid to the account administrator 

If you're enrolling $10,000 of debt into a debt relief program, you can expect fees between $500 and $2,500.

When Should You Seek Debt Relief?

If you're facing a serious financial hardship and are on the brink of bankruptcy due to an overwhelming amount of debt, debt relief may be a solution for you. However, you must have enough room in your budget to build up the funds required to pay for your settlements. The faster you can settle accounts, the better.

Falling behind on your debts puts you at risk of having a lawsuit filed against you. This could result in an expensive judgment filed against you, and it could give creditors or collectors the ability to ask the court to garnish your wages.

Best Debt Relief Companies

 Company  Debt Management Plans  Debt Settlement  Fee
National Debt Relief  Yes Yes 15%-25% of debt enrolled
Accredited Debt Relief  Yes  Yes  15%-25% of debt enrolled 
New Era Debt Solutions  Yes  Yes  14%-23% of debt enrolled 
Freedom Debt Relief  Yes  Yes  15%-25% of debt enrolled 
CuraDebt  Yes  Yes  Varies, average fee of 20% of debt enrolled 
DMB Financial  Yes  Yes  Not disclosed 

Alternatives to Debt Relief

Debt relief isn't the best option for every situation—it may be too expensive or unavailable in your state. Considering some alternatives can help you determine which debt solution is the best fit for your circumstances.

Debt Consolidation

If your credit is still in good shape, you may be able to use a loan to combine your outstanding debts. Debt consolidation often results in a lower monthly payment and a fixed interest rate. Plus it's less harmful to your credit score. In fact, your credit score may increase as you pay the loan down with timely payments.

Consumer Credit Counseling

Consumer credit counselors work with consumers to create a debt management plan for paying off debts. Credit counselors attempt to negotiate a lower monthly payment with your creditors, by lowering your interest rate or extending the repayment time frame. 

Under a debt management plan, you make a single monthly payment to the credit counseling agency, which then distributes your funds to each of your creditors. Credit counseling agencies often charge a small monthly fee, but may reduce or waive the fee if you have a low income.

Negotiating Settlements on Your Own

Negotiating your own debt settlement is an alternative to working with a debt relief program, especially if your balances are already past due. Once you've successfully negotiated a settlement, ask for a copy of the agreement in writing so you have a record of the deal you reached.

Filing Bankruptcy

Bankruptcy allows you to discharge your debts and reset your finances. It should be considered carefully as there are some ramifications. For instance, you may have to surrender assets to the court to reduce your debt balances. Bankruptcy also stays on your credit report for up to 10 years, which can affect your ability to get new credit cards and loans.

Debt Management vs. Debt Settlement/Relief

Debt management and debt settlement have some features in common, but the differences are worth understanding.

 Debt Management  Debt Settlement/Relief
Creates a personalized plan for paying your debt in full Reduces debt balances through negotiated settlements
Usually offered by non-profit organizations with a small, fixed monthly fee  Usually offered by for-profit companies that charge a fee based on enrollment or results 
Many card issuers close accounts in debt management, which can damage credit scores  Requires you to risk your credit by falling behind on payments 
May result in canceled debt, which is taxable

How Long Does Debt Relief Last?

Most debt relief programs last between one and four years, depending on several factors:

  • The amount of debt you have
  • How quickly you can save up enough for a settlement
  • How much your creditors will accept

The faster you can build your settlement fund, the better. If it takes too long to see results, you're more likely to abandon the process.

How Does Debt Relief Affect Your Credit?

Debt relief may hurt your credit score, since you commonly have to cease payments on your accounts to reach a settlement agreement. Each missed payment is added to your credit report and reduces your credit rating. After several months of late payments, accounts may ultimately be sent to a debt collector, which can also damage your score when the collector notifies the credit bureaus.

People with higher credit scores stand to lose more by choosing debt relief. On the other hand, if your accounts are already charged off or in collections, your credit score won't drop as much.

How Much Debt Is Too Much?

What counts as "too much debt" is different for each person depending on your income and other expenses. Measuring how much of your monthly income goes toward debt—your debt-to-income ratio—is one way to discover how much you're spending on debt each month. A ratio at 36% or below is ideal if you're a homeowner and below 20% is best for renters.

Beyond the numbers, there are a few ways to tell whether you're carrying too much debt:

  • You have trouble paying more than the minimum each month
  • You use your cards for everyday expenses
  • You're missing payments
  • Most of your payments go toward interest

What Qualifies for Debt Relief?

Generally, most unsecured debt can be enrolled in a debt relief program. This includes:

  • Credit cards
  • Personal loans
  • Lines of credit 
  • Medical debt
  • Private student loans
  • Peer-to-peer loans
  • Payday loans
  • Third-party collection accounts

If you stop making payments on secured debt, like a mortgage or auto loan, the lender may foreclose or repossess the property or vehicle.

Article Sources
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  1. Federal Trade Commission. "How To Get Out of Debt."

  2. Consumer Financial Protection Bureau. "What's the Difference Between a Credit Counselor and a Debt Settlement or Debt Relief Company?

  3. Consumer Financial Protection Bureau. "Can a Debt Collector Garnish my Bank Account or my Wages?"

  4. Experian. "How to Remove Bankruptcy from Credit Report."

  5. Consumer Financial Protection Bureau. "What are Debt Settlement/Debt Relief Services and Should I Use Them?"

  6. Consumer Financial Protection Bureau. "Debt-to-Income Calculator," Page 2.