How much does a debt relief program cost? (2024)

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MoneyWatch: Managing Your Money

How much does a debt relief program cost? (2)

No matter how financially savvy you may be, there may be points where you find yourself grappling with debt. After all, it takes just one major financial emergency — whether it's an unexpected medical bill, a job loss or an expensive home or car repair — to put you into serious debt, especially if your emergency fund is lacking.

And, if you find yourself facing a mountain of debt, it's important to explore ways to regain financial stability and get things back on track. There are numerous solutions you can consider in these situations, but one viable solution is the use of debt relief programs — which include everything fromdebt management plans to debt settlement programs.

The right debt relief program can be a smart way to deal with overwhelming debt that you can't conquer on your own. However, one burning question that lingers in the minds of those considering this path is how much a debt relief program costs. Each comes with its unique features, benefits, and yes, expenses — so it's important to understand what debt relief expenses you may be on the hook for.

Find out more about your top debt relief options here.

How much does a debt relief program cost?

The cost of a debt relief program varies based on the type of debt relief you're pursuing. If you're considering some of the more common debt relief options, here are the costs you can expect to encounter:

Debt consolidation

Debt consolidation is a popular avenue to consider for those who are juggling multiple debts. The basic premise involves combining various high-interest debts into a single, more manageable payment. Typically, debt consolidation loans or credit card balance transfer offers are used to achieve this — so this option typically requires you to have at least a good credit score to qualify.

The cost of debt consolidation varies, though. For example, if you're opting for a debt consolidation loan, you won't typically pay any program fees, but you might incur fees such as origination fees or loan application charges, which are standard with most types of loans. Or, if you opt to consolidate your debt with a balance transfer, certain credit card balance transfer fees could also apply.

If you're going to opt for this type of debt relief, it's essential to carefully scrutinize the terms and conditions of your chosen method to understand the full financial implications.

Explore the benefits of debt relief online here.

Debt settlement

Debt settlement is a more aggressive approach to debt relief. In this scenario, a negotiator works with creditors on your behalf to settle your debt for a lower amount than what is owed. Debt settlement companies often charge fees based on a percentage of the total debt enrolled in the program.

While debt settlement can potentially help you save a significant amount of money, the associated costs should not be overlooked. 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.

Credit counseling

Credit counseling services offer a holistic approach to debt management. When you enroll in one of these programs, you work with a credit counselor who assesses your financial situation, provides budgeting advice and may negotiate lower interest rates with creditors.

The cost of credit counseling services varies based on the type of service it is. For example, nonprofit credit counseling agencies often charge nominal fees or operate on a sliding scale based on the individual's income. On the other hand, for-profit credit counseling agencies may charge higher fees, and it's essential to ensure transparency in fee structures if you want to pursue this option.

Bankruptcy

Bankruptcy is often considered a last resort for those drowning in debt. And, while it can provide a fresh start, it also comes with both significant financial and credit consequences. The costs associated with bankruptcy commonly include court filing fees, attorney fees and credit counseling fees — which can add up quickly but can also vary based on what your attorney charges, your court's filing costs and other factors.

In general, though, Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, generally has lower attorney fees than Chapter 13 bankruptcy, where a repayment plan is established. But no matter what the costs are, it's still crucial to consider the long-term impact on your credit and financial future when contemplating bankruptcy.

DIY debt relief

If you're somewhat financially savvy, a do-it-yourself (DIY) approach to debt relief might be appealing. This could involve negotiating directly with creditors, creating a personalized debt repayment plan and exploring balance transfer options independently.

The costs associated with a DIY approach are primarily time and effort. But while this method may not involve upfront fees, it requires discipline, financial acumen and the ability to navigate negotiations with creditors successfully.

Other factors to consider

Beyond the explicit costs of debt relief programs, there are other critical factors to consider. For example, the impact a debt relief program has on your credit score, the potential tax implications and the overall effectiveness of the chosen method should all be weighed carefully.

It's also important to be wary of predatory practices within the debt relief industry. Some companies may make lofty promises without delivering substantial results, preying on the vulnerability of those seeking financial relief. Thorough research, reading reviews and checking with consumer protection agencies can help identify reputable service providers.

The bottom line

The cost of a debt relief program is multifaceted and depends on the specific approach chosen. Before embarking on any debt relief journey, it's important to conduct thorough research and carefully assess the overall financial impact that each option could have. While these programs can be a lifeline for those drowning in debt, informed decision-making is key to ensuring a path toward long-term financial health.

Angelica Leicht

Angelica Leicht is senior editor for CBS' Moneywatch: Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.

How much does a debt relief program cost? (2024)

FAQs

How much does a debt relief program cost? ›

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.

How much does it cost to get a debt relief order? ›

There is a £90 fee to the Insolvency Service. It is the only fee you pay to get a DRO. You must use the special barcode you get with the application form.

What is the average debt settlement fee? ›

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.

Is debt relief worth it? ›

Debt relief will also often give you a fixed payment plan and a set payoff date, which can also make it worth considering — as streamlining your payments can make it easier to manage while helping you save money on interest. "One of the biggest advantages of going through a debt relief program is the savings.

Do debt relief companies charge a fee? ›

Key takeaways

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.

What are the disadvantages of a debt relief order? ›

Disadvantages
  • A DRO will hurt your credit rating and remain on your credit file for 6 years.
  • If your circ*mstances change within the 12 months, your DRO may be revoked and you'll have to look at new solutions to repay your debts. ...
  • You can't apply if you've had a DRO or other form of insolvency within the last 6 years.

Can I do debt relief myself? ›

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.

Is debt settlement better than not paying? ›

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.

What is the lowest amount to settle debt? ›

Typically, a creditor will agree to accept 40% to 50% of the debt you owe, although it could be as much as 80%, depending on whether you're dealing with a debt collector or the original creditor. In either case, your first lump-sum offer should be well below the 40% to 50% range to provide some room for negotiation.

Is settling a debt better than paying it? ›

If you can afford to pay off a debt, it is generally a much better solution than settling because your credit score will improve, not decline. A better credit score can lead to more opportunities to get loans with better rates.

Does debt relief destroy your credit? ›

However, this does not influence our evaluations. Debt relief won't hurt your credit alone. However, closing your oldest accounts can drastically lower your standing.

Which debt relief is best? ›

Summary: Best Debt Relief Companies of May 2024
CompanyForbes Advisor RatingBBB Rating
Money Management International4.0A+
CuraDebt3.9A+
New Era Debt Solutions3.8A+
Freedom Debt Relief3.7A+
3 more rows
6 days ago

Can I buy a house after debt settlement? ›

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.

Is it true you don't have to pay a collection agency? ›

If you don't pay a debt collector or collection agency, you'll likely face increasing efforts to collect the debt via phone calls, letters, or even social media contact. Not paying a debt in collections will also hurt your credit score. If you don't pay, the collection agency can sue you to try to collect the debt.

Do debt relief companies actually help? ›

These companies can help you manage certain types of debt, but they won't be the right solution for everyone. Debt relief companies can't help with secured loans, which usually include mortgages and auto loans.

How long does debt relief take? ›

The debt settlement process typically takes three-to-four years. First, you have to put ample funds into the settlement account. Then, the settlement firm has to negotiate multiple agreements with your various creditors, which can take significant time.

How quick can I get a debt relief order? ›

If you gather evidence of your income, spending and debts before getting debt advice, your application could be submitted in a matter of days. The Insolvency Service will then make a decision on your application within 10 working days (two weeks). If it's approved, your DRO will last a year.

What does it take to qualify for debt relief? ›

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.

How much will debt collection agencies settle for? ›

Some will only settle for 75-80% of the total amount; others will settle for as a little as 33%. Looking for a place to set the bar? The American Fair Credit Counsel reports the average settlement amount is 48% of the balance. Again, start low, knowing the debt collector will start high.

How long will it take to get debt relief? ›

Debt settlement can take a few years to achieve, and that's if your creditors agree to settle. You may find yourself making payments to the debt settlement company, just as you would for a debt consolidation loan or to a debt management program.

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