You might feel lost when trying to figure out how debt relief programs work. It can be even more difficult to understand what it’s going to cost you, and if the potential fees make it worthwhile.
Well, here’s how debt relief program fees are set.
What Kind of Debt Relief Are You Considering?
When it comes to debt relief programs, the path you choose is going to play a huge role in determining the cost. Your main options are enrolling in a debt management plan, debt settlement, or filing for bankruptcy. All of these can work, given the right circumstances. The fees associated with each vary a lot though.
Debt management plans (DMPs) are typically the least invasive and most affordable way to get out of debt. These are generally for people who are on the brink of being able to get ahead of their debt, but need a little extra help.
With a DMP, a credit counselor or debt relief agency works with your creditors to get better rates and waivers of certain levies. Through a DMP, you’ll typically pay a monthly fee to the organization that put the plan together to cover the cost of their time.
Debt settlement can have a lot more twists and turns than other kinds of debt relief programs. This is a type of debt relief for those who need something more aggressive than a DMP. With debt settlement, you stop paying your lenders directly and send that money to a debt relief agency, which tries to settle your debts for a lower amount in exchange for one-time payments in full. This can work for those who need more than a DMP, and want to avoid filing for bankruptcy protection. You will typically pay a fee for setting up the account with the debt relief agency, as well as a fee based on the debt settlement amounts.
Make Sure You Understand How Fees are Set
When it comes to popular debt relief programs, like those at www.freedomdebtrelief.com, look through the fee structure and ask as many questions as you can. Be wary of any organization that’s not totally forthcoming about how it charges you. You’ll want to know if you’ll get charged on the final amount you owe or the amount your debt was reduced. This can make a huge difference when all is said and done.
There May Be Fees or Other Costs Associated with Your Original Creditors
It’s important to remember your original lenders when working through a debt relief program. Just because you’ve entered into an agreement with a debt relief agency doesn’t necessarily mean your creditors are going to be keen to negotiate or settle.
Not making payments on your debt can lead to accumulating interest, as well as other fees. This can turn a bad situation into something even worse. Do your best to understand what you can potentially be on the hook for with your initial lenders before deciding to enter into a debt relief program.
You Might Have to Pay Taxes on Settled Debt
Many people assume forgiven debt is a weight taken off their shoulders altogether. However, the reality isn’t quite so simple. The IRS can consider the settled portion of a debt as income. If you get a $10,000 debt reduction you could have to pay taxes on that amount.
Dealing with debt is a complicated thing. It can get even more challenging when you think about all the ways you might have to deal with fees. It’s essential to learn how your debt relief program’s fees are set before agreeing to accept it.