- Reduce debt by up to 40%
- Be debt free in as little as 12-30 months
- Lower your monthly payment
- Make one simple monthly payment
- Don’t risk your home or other personal property if
you miss a payment
- Don’t pay service fees unless our program saves you money
- Reduce your stress and get a “New Deal”
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Who Is Affected Most By Interest and Late Fees In Credit Card Settlement Programs?
The fact that interest and late fees continues to accrue in credit card debt settlement is a concern of many consumers. In the end, the savings from settlement are still quite dramatic despite this fact, particularly in light of how expensive just barely making the minimum credit card payments can be. That being said, some consumers are affected more by the fact that interest and late fees continue to accrue throughout the debt negotiation process. Those consumers are those with smaller balances and overall debt. Yes, consumers with small balances can still benefit tremendously from settling their debts, but on the same token, the overall percentage savings tends to be less than those who have larger balances.
The reason is simple: credit card late fees are typically not based on your debt amount, so late fees can increase the balance on a smaller debt much more than a larger one on a percentage basis. That is, a $50 late fee assessed on a $500 accounts for a larger percentage increase than a $50 late fee assessed on a $10,000 balance. In order to better understand this concept, consider the following examples.
Example A
A late fee of $50 is assessed for 6 months on a $10,000 balance before the debt is charged-off and sold to a third party collection agency. That amounts to an increase of $300 on the balance from the late fees, or a 3% of the outstanding balance. The interest on the account was 30%, so the balance with late fees and interest amounts to $11,701. The account is then settled for 40 percent of the current balance, so the consumer pays roughly $4680.
Example B
A late fee of $50 is assessed for 6 months on a $500 balance before the debt is charged-off and sold to a debt collector. The late fees and interest rate are the same as Example A, so the balance at the time of settlement is $870. The account is settled for 40% of the current balance, so the consumer pays $348.
In Example A, the consumer pays just under 47 percent of the original balance, so the savings are tremendous. In Example B, however, the consumer pays just under 70 percent of the original balance. Although the savings from enrolling a smaller balance can be very significant versus making the minimum payments or through a debt management plan (DMP), debt settlement clearly favors consumers who have large balances.
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