The Headline Number
Debt settlement companies generally charge 15 to 25 percent of the debt you enroll. The exact percentage varies by company, by state, and by how much you enroll. On $30,000 of enrolled debt, a 20 percent fee is $6,000 — a large number that is easy to lose sight of when the focus is on the reduced balance.
It Is Based on Enrolled Debt, Not Savings
A crucial detail: the fee is usually calculated on the amount of debt you enroll, not on the amount you save. That distinction changes the real cost. Read the agreement to see whether the percentage applies to the original balance or the settled amount, because the two produce very different totals.
When the Fee Can Legally Be Charged
Under the FTC Telemarketing Sales Rule, a debt-settlement company cannot charge a fee until it has actually settled or reduced at least one of your debts. Any company asking for payment before it has settled anything is operating outside that rule, and that is a reason to walk away.
The Costs That Are Easy to Miss
Beyond the headline fee, budget for the dedicated-account maintenance fee some programs charge, and for a possible tax bill: forgiven debt can be reported as income on a Form 1099-C. Add those to the percentage fee to see the true cost, then weigh it against the other risks and against bankruptcy.
Before You Act
Thinking About Filing a Claim?
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How Much Do Debt Settlement Companies Charge?: Frequently Asked Questions
Answers to the most common questions about this case and your legal options.
How much do debt settlement companies charge?
Generally 15 to 25 percent of the enrolled debt, charged only on debts that are actually settled. The exact rate varies by company and state.
Is the fee based on my debt or my savings?
Usually on the debt you enroll, not on the amount you save. Check the agreement, because that distinction changes the real cost significantly.
Can a debt settlement company charge upfront?
No. The FTC Telemarketing Sales Rule bars charging a fee before at least one debt has been settled or reduced. An upfront charge is a red flag.
Are there other costs?
Yes. Some programs charge a dedicated-account maintenance fee, and forgiven debt can be taxed as income via a Form 1099-C. Factor both into the total.
Legal Disclaimer
This article is general legal information, not legal advice, and does not create an attorney-client relationship. Case status, eligibility criteria, and any amounts described are as reported at the date shown and may change. Consult a licensed attorney in your jurisdiction about your own situation.