Before you enroll in any debt relief program, you should know exactly what it will cost. Understanding how debt settlement fees work, and what the law says about them, makes it easier to compare companies and spot the ones to avoid.
The Law: No Fees Before Results
The Federal Trade Commission’s Telemarketing Sales Rule protects consumers who sign up for debt relief services by phone. Under this rule, a debt settlement company generally cannot charge you any fee until:
- It has settled or otherwise changed the terms of at least one of your debts,
- You have agreed to that settlement, and
- You have made at least one payment to the creditor under the settlement.
If a company asks for payment before it has settled anything, treat that as a serious red flag.
How Fees Are Usually Calculated
Fees are typically charged in one of two ways:
- A percentage of enrolled debt. This is the most common structure. The fee is based on the balance of each debt when you enrolled, and it is charged as each debt is settled.
- A percentage of savings. The fee is based on how much the settlement saved you compared with what you owed.
Across the industry, fees commonly fall somewhere around 15% to 25% of enrolled debt. Whatever the structure, the company must tell you the fee and how it is calculated before you sign up.
Your Dedicated Savings Account
During a program you usually make monthly deposits into an account set up for settlements. Under the FTC rule, that account should be held at an insured financial institution, the money belongs to you, you earn any interest, and you can withdraw your funds at any time without penalty. Some account providers charge a small monthly maintenance fee, which should be disclosed up front.
Red Flags to Watch For
- Upfront or “enrollment” fees before any debt is settled
- Guarantees that your debt will be cut by a specific amount
- Promises to stop all collection calls or lawsuits
- Pressure to sign up immediately
- Vague answers about total cost
Read more in our guide to common debt settlement scams and how to avoid them.
Questions to Ask Any Company
- What is your fee, and exactly when is it charged?
- Who holds my savings account, and what does it cost?
- How long do you expect my program to take? (See how long debt settlement takes.)
- What happens if a creditor sues me during the program?
- Can I leave the program at any time?
Clear Answers, No Surprises
At Alliance Settlement, we walk you through every cost before you enroll. Request your free consultation to see what a program could look like for you.
