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How To Estimate The Payment For A Debt-Relief Service

Posted By:  |  September 18, 2014  |  0 Comment(s)

Estimating Your Debt Relief Price

By: Anthony Manganiello

Creator of www.DebtFreeAcademy.com

*Some of this will vary, depending on the company you are working with.

If you’re considering a debt-relief service because your credit card debt is causing sleepless nights, then there’s one thing you should be aware of. Many people who start a debt relief service don’t complete it.

In the debt-relief market, cancelation rates are fairly high. While there is a lot of speculation regarding the cause of these high cancelation rates, it’s been my experience that one of the biggest reasons is because the payment for said service just doesn’t provide enough relief.

Think of it this way, you’re struggling to make your payments. You pick up the phone and call one of those agencies promoting lower payments , and you find out they can save you… say… $150 a month. Your response, “GREAT! Where do I sign?”

However, how so you know if that $150 savings is enough? How can you make sure you don’t start a program that’s destined for failure?

This article will provide you with a simple way to help you estimate what the payment for either a debt management or debt settlement service would be. ONE IMPORTANT NOTE: This article will merely provide you with estimations – only the actual service provider will be the one to stipulate what the actual payment.

The first step in the process is to add up the total outstanding balances and minimum monthly payments required for each of your credit cards (since debt-relief service providers usually only work with credit card debt).

Let’s say after you’ve done this, your total outstanding balance for all your credit cards debt is $18,000, and the total minimum payments you’re required to make on all of those cards is $590. Once you have those totals, here’s what you do next…

Debt Management Payment Estimation

Here’s how to “estimate” the payment for a debt management service. Take the total balance of all your cards and multiply that total by 2.5%. The equation would look like this:

$18,000 x 2.5% = $450

In this case, there’s that savings of the $150 I mentioned earlier ($590 – $450 = $150). The reason for this equation is because – on average – creditors will accept a payment of around 2.5% of the balance you owed. So, adding them all up and multiplying that total by 2.5% will give you an “idea” of what a debt management

payment “could” be. And $450 would be on the lower end of the payment spectrum for a debt management service. Also, keep in mind that – depending on your state of residence – these services will assess a fee on top of that payment. I suggest adding $50 to whatever answer you get. In this case – $450 + $50 = $500 for your estimated monthly payment for a debt management service.

Debt Settlement Payment Estimation

Let’s take the $18,000 we used in our previous example and use that total to estimate the payment for a debt settlement service.

When you talk with a debt settlement provider, they’ll tell you – for the most part – that they can settle your debts for 50 cents on the dollar (50% of the balance). However, what sometimes isn’t mentioned is that the balances will most likely grow because of late fees and other fees incurred with delinquent accounts. Additionally, debt settlement services make their money by charging fees for the amount of the savings they achieve for you.

So, to estimate the payment for a debt settlement company, there are two steps you need to take.

First, multiply that total outstanding balance by 70%. This percentage is what I’ve found to be what you would wind up paying – including any late fees incurred on the delinquent accounts, as well as the fees assessed for the settlement service itself. The equation would look like this:

$18,000 x 70% = $12,600

This means that over the entire course of the debt settlement service you’re estimated to pay $12,600. Most reputable settlement companies want to see you fund their program within 36 months. So, to estimate the payment for the service, you would divide the answer to the first equation (in this case the $12,600) by 36. This would look like:

$12,600 ÷ 36 = $350

So, in this example, the estimated payment for a debt settlement service would be about $350 (that’s $250 less than the total minimum payments).

QUICK NOTE: Just because the settlement service offers a lower payment doesn’t necessarily mean it’s one you should choose. I always recommend using settlement services ONLY if you can’t afford the payment for a debt management service and you’re trying to avoid bankruptcy.

Of course your numbers are probably different, but I think you get it.

Plug your numbers in and see what your estimated payment would be. Then, plug it into your budget using these answers to replace the minimum required monthly payments we mentioned earlier. By doing this, you’ll have an “idea” regarding which service is one you can realistically afford.

Once you’ve discovered what “kind” of service would be the one you can afford, I suggest you then visit the company review page and research which company in that category you should contact.

Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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