How much does a debt relief program cost?

Many factors affect the overall cost of a debt relief program.

What is a Debt Relief Program?

A debt relief program is a process in which a debt relief company or debt settlement company negotiates with your creditors to settle your debts for less than you owe. During the program, the debt relief company will usually ask you to stop all credit card payments. This can lead to late fees and collection attempts (including lawsuits against you) and damage to your credit record. The debt relief company may also require you to deposit funds into a designated account to fund your debt settlement. There may be fees for maintaining the account. You might make monthly payments into the account for three to five years or more. Customers’ debts in a debt relief program are reduced by 32% after fees, according to a report by the American Fair Credit Council. However, the debt relief company may not succeed with all your accounts. Fees and penalties can accumulate on accounts that are not settled, which can exceed the savings you achieve from successfully settled accounts.

How Much Does Debt Relief Cost?

Debt relief companies may charge fees ranging from 14% to 25% of the settled debt amount, according to our analysis of a sample of five debt settlement companies. There may also be fees for maintaining a designated account for the program.

When Should You Seek Debt Relief?

You should consider working with a debt relief company only after exhausting all other options. If debt consolidation won’t work due to your credit score or the amount of debt, and if you cannot afford the monthly payments of a debt management plan, filing for bankruptcy Chapter 7 may be a better alternative than debt settlement. This is because it takes less time, stops collection calls and lawsuits, and can eliminate or significantly reduce your financial obligation. However, if you do not meet the eligibility requirements for bankruptcy, or if you do not want bankruptcy to appear on your credit report, you can consider a debt relief program. Just make sure you are aware of the risks of debt settlement.

Alternatives to Debt Relief

Debt Management Plan: A non-profit credit counseling agency can negotiate lower interest rates and fees on your debts. You typically make a single monthly payment to the agency, which will distribute the funds to your creditors. This is known as a debt management plan. Credit counseling can also help you create a budget and avoid debt in the future.

Debt Consolidation: Debt consolidation involves combining your debts into a single monthly payment, either by obtaining a new loan or taking advantage of a balance transfer offer. The goal is to secure a lower interest rate to save money. For example, you might use a low-interest personal loan or a home equity loan to pay off your credit card debts, leaving you with one loan payment. Alternatively, you might transfer your debt to a credit card with a 0% introductory rate. But in either case, you will likely need good credit to qualify.

Snowball Method: The snowball method is the fastest way to get out of debt on your own without applying for new credit. It involves making minimum payments on all your debts and devoting any extra cash you have to the debt with the highest interest rate. Once that debt is paid off, you move on to the next highest interest debt.

Bankruptcy

Chapter 7: Bankruptcy

Chapter 7 is a legal process that allows you to wipe out many of your debts. Filing for Chapter 7 bankruptcy stops collection efforts. Your creditors will have a chance to ask you questions, and your non-exempt property will be sold to pay off your debts. You must meet certain requirements, but individuals earning less than the median income in their area typically qualify. Chapter 7 bankruptcy remains on your credit report for up to 10 years.

Chapter 13 Bankruptcy: Chapter 13 bankruptcy allows you to keep your property and make payments that fit your budget over a period of three to five years. After that, most of the remaining debts are discharged. Bankruptcy also stops collection efforts. Chapter 13 bankruptcy is available to individuals earning more than the median income in the area, but it takes longer than Chapter 7 bankruptcy. Chapter 13 bankruptcy remains on your credit report for seven years.

Note: You can try to negotiate with your creditors yourself if you do not wish to join a program. You might offer them a lump sum to settle your debts or negotiate a lower interest rate. Some credit card companies may offer repayment plans that make the debt easier to manage.

When Is Debt Considered Too Much?

There are different opinions on how much debt is considered too much, but most financial advisors and lenders agree that spending 43% or more of your total monthly income on debt repayment means you have too much debt. Most financial experts say you should aim to keep your debt-to-income ratio below 20%, meaning you should not spend more than 20% of your gross income on debt repayment, excluding your mortgage payment.

What Are the Qualifications for Debt Relief?

Each debt relief company has different requirements. For example, they may have requirements for credit score, debt-to-income ratio, proof of hardship, or a minimum debt amount.

Source: https://www.thebalancemoney.com/how-much-does-a-debt-relief-program-cost-7852661