Debt Negotiation Programs and Retainer Fees

For the most part, companies in the debt settlement business typically follow industry standards in terms of what they charge their clients. On average, the total fees may fall anywhere from 12-18% of a client’s total debt amount. However, as a consumer you must be cautious when you are given the original cost of the debt settlement program. Usually, when you ask an agent how much their program costs, they will reply “_____% of your total debt amount.” And while you may be pleased with the percentage they give you, don’t stop there. Ask more questions to find out exactly how they collect their fees. I assure you that some companies who charge the same percentage of your total debt amount have different methods in how and when they collect those fees.

Typically, a debt settlement company will charge you a retainer fee and a service fee, which makes up the total percentage of what you pay them for their services. What you must be careful of is how they collect their retainer fees, if they do in fact have one. There exist many companies in the industry who actually do not collect a retainer fee. Instead, they charge you a flat rate for a service charge that they spread out over the period of your enrollment. For example, client A will pay _____% of their total debt over a 30 month period. But, if the company is not in fact only charging you a service fee, make sure you know the detailed stipulations of their agreement.

Typically, retainer fees are collected in full over the beginning months of a program once the client is enrolled. This ensures the company that they will collect a profit from each client. That isn’t to say these companies are unethical in how they charge you. The majority of debt settlement companies are very effective in what they can do, and typically save their clients thousands of dollars while settling their outstanding debts. But, you want to shy away from settlement companies who, for instance, collect their retainer fee in full over the first three months or less of the program. This is a very short period of time and you will be paying more or less a heavy up front fee for enrolling. This is also referred to as an “activation fee.” Consider this example: client A owes 50,000 dollars, and the company charges a retainer fee of 5% over the first three months. That means client A is turning over 2,500 dollars to the company over the first three months, all the while saving practically nothing in the trust account to settle the debts.

A more realistic retainer fee that you as a consumer seeking a debt settlement company should shoot for would be 4-5% of your total debt over the first 4-5 months or longer. Anything less than that and you will be forced to pay a retainer that may put you deeper into the financial hole you are in. In addition, you should certainly ask the company if their retainer fee is refundable if their services are not effective. If it is not, make sure there is a money back guarantee for their service charges in the contract that will ensure you the opportunity to receive the majority of the money back that you invested in the company if they are not successful for you in settling all of your accounts.