Typical Debt Settlement Fee Structures

Many consumers who are considering debt settlement are concerned about the their debt settlement program's fee structure. Some individuals prefer for the fee to be flat, so they can predict the cost of their debt settlement service before they enroll.  However, other consumers would rather pay a fee that represents a percentage of their total savings. This structure ensures that the consumer's best interests are closely aligned with the interests of the debt settlement company.

Each of these options carry different benefits and drawbacks. So what is the best fee structure for consumers?

Percentage-based fees would appear to be the better choice for consumers, because the debt settlement company has an incentive to help the consumer save as much as possible. However, many consumers who choose percentage-based fees end up paying far more due to hidden fees and other costs, such as maintenance and set-up fees. Additionally, some settlement companies charge up to 30% commissions on the settlement, so the consumer costs can add up quickly.

Consider this hypothetical situation. A consumer has a $10,000 debt settled for $4,000. That consumer paid a $500 fee to enroll in the debt settlement program, plus $25 monthly maintenance fees for 24 months until their account was finally settled. Due to the size of the consumer's savings, the fees for the settlement total $1800. That means the total cost of the settlement was $2,900.

Also, many consumers do not realize that, with fees based on a percentage of their savings, most companies require fee payments following each settlement, not just after the program is completed. That means that, even though the fees are required up-front, consumers still have to pay fees prior to their accounts being settled.

In some cases, this arrangement creates an incentive for the settlement company to negotiate those accounts with the lowest potential settlement first, instead of pursuing those creditors who are more aggressive and are likely to pursue legal action, or any other account which the client would rather have settled sooner. In fairness, a flat fee structure carries some disadvantages as well. One is that, if you should drop out of your debt settlement program, you will have paid fees before enjoying the benefits of debt settlement. In some cases, the flat fee model may also prevent consumers from saving larger amounts on their debt settlements, because so much of their payment is going towards fees.

Whether you choose a company that charges a flat fee or one that charges a fee based on a percentage of your debt settlement savings, it is important to research all your available options before making a decision. To learn more about how we can help, contact us today.