For consumers considering debt settlement, many are concerned about the fee structure of their proposed program. Some prefer that the fee is flat, that they know the exact cost of the service prior to enrolling. On the other hand, some consumers prefer that the fee is a percentage of the savings---this way the best interests of the client is completely in line with the best interests of the settlement company. Both of these are conclusions are very logical, so what is in fact the best fee structure for the consumer?

Intuitively, the fees being based on the settlement percentage seems to have the best interests of the client in mind. However, many clients end up paying far more by having this structure in place because of hidden fees, monthly maintenance fees, and most still end up paying an up front retainer or set up fee. Some settlement companies charge as much as 30% of the savings on the settlement, which can be extremely pricey. Consider the following:

A $10,000 balance is settled for $4,000. The consumer paid $500 up front to enroll, plus monthly maintenance fees of $25 for 24 months before the account was settled. Since the savings were large, the consumer ends up paying another $1800. All together the total cost is $2,900. Sure you save some money, but nearly as much as if the fee was based on the debt amount at the time of enrollment.

Another little known fact about savings-based fees is most companies make you pay the fee after each settlement, not once the program is completed. In other words, although the fees are necessarily up front, you still have to pay fees before all your accounts are settled. In some instances, this gives the settlement company the incentive to negotiate the accounts with the lowest possible settlement first, instead of the creditor that’s most aggressive and more likely to pursue legal action or perhaps another account that the client would prefer settled immediately, such as one with a co-applicant or one that is harassing them.

To be fair, one of the downsides of a flat fee model is that in the event you drop out you will have paid fees before any results are achieved.  Some also argue that that flat fee model prevents consumers from being able to save money aggressively to make settlements since too much of the payment is going to the fees. 

Clearly the issue of the best approach to paying fees in a debt settlement program is an important, and before making any decisions, it is essential that you first investigate your options and consider them in light of your individual situation.

If you would like to learn more about our debt settlement service, please feel free to call (877) 274-1260 or fill out a form and we’ll contact you as soon as possible.