How Much Does a Debt Relief Program Cost?

Debt relief program costs range from 14% to 25% of your settled debt amount, according to our analysis of a sample of five debt settlement companies. You may also be charged for maintaining a dedicated account for the program.

It’s important to understand that debt relief companies, also known as debt settlement companies or debt elimination programs, may leave you with more debt than you started with. And there are other risks to consider besides the cost of a debt relief program. We’ll cover what you need to know about debt relief program costs and alternatives.

What Is a Debt Relief Program?

A debt relief program is a process by which a debt relief or debt settlement company attempts to negotiate with your creditors to settle your debt for less than you owe. During the program, the debt relief company will typically request that you stop all credit card payments. This can result in late fees, collection attempts (including lawsuits against you), and damage to your credit score. 

The debt relief company may also require you to deposit money into a dedicated account to fund your debt settlement. There may be fees for maintaining the account. You may make monthly payments into the account for three to five years or more. 

The average debt relief program customer has their debt for settled accounts reduced by 32% after fees, according to a report commissioned by the American Fair Credit Council. However, the debt relief company may not be successful with all your accounts. Fees and penalties can build up on unsettled accounts, which can surpass the savings you receive from the accounts that are settled successfully. 

Some debt relief companies are scams. Never work with a company that charges upfront fees, since this practice is illegal. The company must disclose the costs, risks, and timeline for debt relief before charging you anything.

How Much Does Debt Relief Cost?

Debt relief companies may charge between 14% and 25% of your settled debt amount, according to The Balance's analysis. Legitimate debt relief companies use a performance-based model, meaning you only pay after the company settles some portion of your debt.

Fees vary depending on where you live, how much debt you have, and other factors. You also may pay fees for keeping a dedicated account, which is typically managed by a third party. Below are the disclosed fees from five of the best debt relief companies. 

When Should You Seek Debt Relief?

You should only consider working with a debt relief company after you’ve exhausted all your other options.

If debt consolidation won’t work because of your credit score or debt amount, and if you can’t afford the monthly payments for a debt management plan, Chapter 7 bankruptcy may be a better option than debt settlement. That’s because it takes less time, stops debt collection calls and lawsuits, and can eliminate or significantly reduce your debt obligation. 

However, if you don’t meet the eligibility requirements for bankruptcy, or if you don’t want bankruptcy to show on your credit report, you may consider a debt relief program. Just make sure you’re aware of the dangers of debt settlement. 

Alternatives to Debt Relief

• Debt management plan: A nonprofit credit counseling agency can negotiate lower interest rates and fees for your debts. You’ll typically make one 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 one monthly payment, either by taking out a new loan or by taking advantage of a balance transfer offer. The goal is to get a lower interest rate to save money. For example, you can use a low-interest personal loan or home equity loan to pay off your credit card debt, leaving you with one monthly loan payment. Or, you can transfer your debt to a credit card with a 0% introductory period. But in either case, you’ll likely need good credit to qualify. 
• Debt avalanche method: The debt avalanche 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 all the extra cash you have to the debt with the highest interest rate. Once that debt is paid, you move onto the debt with the next highest interest rate. 
• Chapter 7 bankruptcy: Chapter 7 bankruptcy is a legal process by which you can erase many of your debts. Filing Chapter 7 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 people earning below the median income in their area tend to qualify. Chapter 7 bankruptcy stays on your credit report for up to 10 years. 
• Chapter 13 bankruptcy: Chapter 13 bankruptcy allows you to keep your property and make the payments your budget will allow for over three to five years. After that, most remaining debts are erased. Filing also stops collection efforts. Chapter 13 bankruptcy is open to people who make more than the area median income, but it takes longer than Chapter 7 bankruptcy. It stays on your credit report for seven years. 

Debt Management vs. Debt Settlement/Relief

Debt management plans are offered by nonprofit credit counseling agencies that charge low monthly fees, while debt relief programs are offered by for-profit companies that charge 14% to 25% of your settled debt.

While credit counselors negotiate your rates and fees with your creditors, debt relief companies ask you to stop making payments. This can hurt your credit and even result in lawsuits. For this reason, a debt management plan is often a better option. 

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