Receiving support from friends is wonderful — provided it’s effective. However, there are instances when seeking professional assistance is a better option. Overwhelming debt can often be one of those situations.
While it’s possible to achieve debt relief independently, the learning curve can be quite challenging and can lead to setbacks. It might take significantly longer to resolve your debt on your own, and credit card debt increases daily due to the compounding interest effect. With this in mind, you might be curious about the costs associated with debt relief services.
Understanding How Debt Relief Functions
When you enroll in a debt settlement program, instead of paying your creditors directly each month, you will make deposits into an escrow account. Once the balance is enough to satisfy one of the negotiated agreements with a creditor, the settlement agent will transfer the funds (with your consent) to the appropriate creditor, resulting in the forgiveness of that debt.
Caution is necessary, however, as there are many unscrupulous individuals looking to exploit those seeking debt relief. You can refer to the American Fair Credit Council, which maintains a list of reputable agencies that can assist you in locating trustworthy debt relief services in your area. Additionally, keep in mind that utilizing this type of debt relief might lead to tax implications. Some creditors notify the IRS of forgiven amounts, which may be considered taxable income.
Financial Benefits of Debt Relief
By enrolling in debt relief services like those provided by Freedom Debt Relief, an agent will negotiate on your behalf with creditors to lower the principal owed, as well as any associated fees and interest. Essentially, their goal is to help you reduce your outstanding balance, making it easier for you to pay. Lenders often accept a one-time full payment of the agreed amount in these situations.
This willingness to negotiate stems from their awareness that your next likely step may be bankruptcy court if a settlement isn’t reached. Credit card companies and lenders prefer to agree to a reduced payment rather than risk losing everything to a judge. However, you must ensure your situation is precarious enough to warrant such negotiations, as they will assess the urgency of your circumstances before agreeing to a settlement.
Potential Savings
According to a study by the American Fair Credit Counsel, consumers can save as much as $2.64 for every dollar they invest in debt settlement services.
Referred to as the Regan Report, this study was based on feedback from approximately 400,000 customers who engaged in debt settlement programs between January 2011 and May 2020. A significant finding showcased that about 96 percent of negotiated settlements resulted in reductions greater than the fees charged for the service. Typical debt settlement offers range from 10 percent to 50 percent of the outstanding amounts.
Understanding Fees
The specific charges can vary by company, but generally, you can anticipate paying an average of 20 to 25 percent of the total debt enrolled in the debt relief program. The duration of your enrollment may differ based on your total debt and your ability to contribute to the escrow account for settlements. It’s also crucial to understand that debt negotiation agencies can only charge for their services if they successfully negotiate a settlement on your behalf, and billing occurs only when the debt is settled to your satisfaction.
