All Insurance Professionals

Debt settlement is becoming one of the most popular ways to get rid of debt. Since it involves potentially paying less than what is actually owed, even consumers who have a tight budget are finding this an attractive option. There are hundreds of different credit card debt reduction companies in operation today, both non-profit and for-profit. One of the most important considerations in choosing a program is the fee structure. Companies will always present the program fee structure in a manner that seems to be to the client’s benefit. There are two different structures which are commonly used – the percentage and the flat-rate methods.

With percentage-based programs, the statement made by companies regarding their fee structure is that they take a percentage of the difference amount between the settlement and original amount. For example, if the original debt was $10,000 and the settlement amount was $6,000, this means the difference would be $4,000. If the company charged 20%, they would take $800. In addition to this, there are fees that may not be mentioned, but are in the contract. Fees such as monthly maintenance charges and enrollment charges are often assessed also. Both the fees and amounts are paid after each individual settlement. Payments are set up on a monthly basis, in which they are deposited into an escrow account; when enough funds are available, debts will be settled one at a time. If the client chooses to quit the program, they will not lose any money and will receive their escrow funds back.

Flat-fee schedules require an up-front flat fee for the debt settlement process. A settlement amount is quoted, the fee is added and paid; then the company will settle the debts. If the client chooses to quit this type of program, the fee is non-refundable. Both programs have advantages and disadvantages for both clients and settlement companies.