How Much Does Debt Relief Cost?

When you’re faced with crippling debt that you can’t afford to pay, it may seem like there’s no way to avoid bankruptcy. One way to make your debt more manageable is to request debt relief.

Debt relief can help you reduce the amount of debt you owe and organize your payments in a more manageable way. Read on to learn what debt relief is and what its related costs are.

What is debt relief?

Debt relief, also known as debt settlement, is a process by which you — or a third party, on your behalf — request your creditors to pay less than the full amount you owe. You can engage in this process yourself or hire a debt relief company to do it for you. While the DIY approach to debt relief is certainly less costly, it is ultimately more time-consuming and will require a detailed knowledge of your debt history and your creditor’s processes.

To qualify for debt relief, you must have a significant amount of unsecured debt. Unsecured debt is debt that is not backed by collateral. Most auto loans and home loans are secured by the very thing the loan is being used to pay off and therefore do not qualify for debt relief. Common types of unsecured debt include credit card debt, unpaid medical bills and student loan debt.

If you decide that debt relief is right for you and choose to hire a debt relief company, make sure the company is accredited by the American Association for Debt Resolution and has a history of positive feedback with their debt solutions. You can also refer to organizations that review the legitimacy and standing of businesses such as the Better Business Bureau (BBB) and/or the Consumer Financial Protection Bureau (CFPB).

Some companies that paint themselves as having debt relief programs can have misleading or outright false claims. Watch out for claims that sound too good to be true, such as promising to settle all your debts or a specific percentage by which your debt will decrease. Legitimate debt relief companies will never charge you upfront fees before they have settled your debt.

All in all, debt relief is a process that can ease the financial burden of debtors with a certain type and amount of debt, but it is not the only solution to get out of debt. Alternatives to debt settlement include debt consolidation — which lets you combine multiple debts into one new loan — and debt management plans, which are structured repayment programs offered by nonprofit credit counseling agencies. You should weigh your options and consult with a debt expert before deciding which debt solution is best for you.

How do debt relief companies work?

Debt relief companies help ease the burden of what can be a daunting task by negotiating directly with creditors on your behalf. These types of companies also have the advantage of having established relationships with many well-known creditors, leading to a presumably faster and more streamlined process.

Debt relief companies work by reaching out to your creditors and offering to pay an amount between 30% to 80% of your outstanding balance. Creditors might consider accepting this deal rather than having you default on your payments and receiving no money at all. You usually have to have at least $7,500 in unsecured debt to qualify and the entire process can typically take anywhere from two to four years to complete.

Debt relief companies pay your creditors by having you make monthly deposits into a savings account under your control. These funds are then used to eventually pay the reduced balance to your creditors. This is why the entire debt settlement process can take a while and your credit can be affected in the meantime, as the process requires you to stop paying your creditors and build up your savings account instead.

How much does debt relief cost?

Debt relief costs depend on the method you use. You can use the DIY method, which will only cost you time and effort. If you decide to hire a debt relief company, the prices can also vary depending on which company you choose. Debt relief companies tend to charge 15% to 25% of either the total enrolled debt or the amount of debt that gets settled. Make sure to read the specific terms of the debt company you are considering before committing to a specific plan.

Most importantly, debt relief companies cannot legally charge you until you and your creditors have both agreed to a debt settlement agreement and a payment has been made to the creditor. This is why it is important to choose a debt relief company that has a consistent track record and is accredited by the American Association for Debt Resolution.

Debt Relief Costs FAQs

How much does a debt relief program charge?

Debt relief programs usually charge between 15% and 25% of the total debt owed or the total amount that is eventually paid to the creditor, depending on the company and your financial situation.

Is it worth doing a debt relief program?

The answer to this depends on your financial situation, including how much unsecured debt you have and if other debt solutions are not a better fit for you.

Do debt relief programs cost money?

Debt relief companies charge a fee after the debt repayment plan has been settled, although you can engage in the debt relief process by yourself by contacting your creditors directly and offering them a settlement.

Debt Relief Costs Summed Up

Debt relief is a solution that debtors with unsecured debt can employ to negotiate with creditors to pay less than what they owe. You can engage in this process by yourself or hire a debt relief company to negotiate with your creditors on your behalf.

The price of this service may vary but it is usually 15% to 25% of the total overall debt or the agreed-upon amount that will be paid. The price variance depends on the company but no company can ever charge you fees before the deal has been approved by both you and your creditors and the payment has been made.