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How Much Does Debt Settlement Cost in Fees?

If you’re struggling with overwhelming debt, debt settlement may seem like an appealing option. But before you sign up with a debt settlement company, it’s important to understand how much it will cost you in fees. This article will break down the typical fees charged by debt settlement firms so you can determine if it’s truly the right debt relief option for your situation.

What is Debt Settlement?

Debt settlement involves negotiating with creditors or debt collectors to settle your debts for less than the full amount owed. For example, if you owe $10,000 on a credit card, a debt settlement company may be able to negotiate with the credit card company to accept a settlement of $5,000 as payment in full. The $5,000 savings is enticing, but you’ll also have to pay fees to the debt settlement company for their services.

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Common Fees Charged by Debt Settlement Companies

There are several types of fees to be aware of if you’re considering debt settlement:

Enrollment Fees

Many debt settlement companies charge an upfront enrollment fee just to get started. This fee can range anywhere from $200 on the low end to as much as $4,000 with some companies. The enrollment fee is supposed to cover the cost of setting up your account.

Monthly Service Fees

In addition to the initial enrollment fee, most debt settlement companies also charge a monthly service fee. This ongoing fee is generally around $50 per month. It’s meant to cover the costs of maintaining your account and negotiating with your creditors.

Settlement Fees

This is usually the largest fee charged by debt settlement companies. The settlement fee is a percentage of the total debt enrolled in the program, generally ranging from 15% to 25%. Using the example above of $10,000 in debt, you would pay a settlement fee of $1,500 to $2,500 on top of any other fees.

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The settlement fee may be charged all at once when you first enroll or incrementally as each debt is settled. For example, if you settle one of your three credit cards for 50% of the balance, the company may charge you a third of the total settlement fee at that time.

Account Closure Fees

Some debt settlement companies charge an account closure fee when you complete the program. This fee can range from $50 to a few hundred dollars.

Estimating Total Fees

It’s difficult to give an exact dollar amount for how much debt settlement costs in total fees. The fees vary widely by company. However, the Federal Trade Commission says total fees often amount to 15% to 25% of the enrolled debt. Using that guideline:

  • If you enroll $10,000 in debt, expect to pay $1,500 to $2,500 in fees
  • For $20,000 in debt, fees could range from $3,000 to $5,000
  • On $30,000 in debt, you might pay $4,500 to $7,500 in fees

Some companies may charge even higher fees amounting to 30% or more of your total debt enrolled. It pays to shop around and compare fee structures.

Pros and Cons of Debt Settlement

Before deciding if debt settlement is right for you, it’s important to weigh the potential pros and cons:

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  • Settles debt for less than you owe
  • Stops collection calls and lawsuits
  • Allows you to pay off debt faster than minimum payments
  • May help avoid bankruptcy


  • Damages your credit due to not paying creditors in full
  • Creditors may balk at settlement offers
  • Debt settlement fees can be expensive
  • Settled debt may be taxed as income

Alternatives to Debt Settlement Companies

If you want to settle your debts but are wary of high fees, consider these alternatives:

Do-It-Yourself Debt Settlement

You can negotiate debt settlements yourself without paying fees to a third-party company. This takes time and persistence, but can save you thousands in fees. Send letters making settlement offers and follow up diligently with phone calls. Get any agreements in writing from creditors.

Non-Profit Credit Counseling

Reputable non-profit credit counseling agencies charge much lower fees and help you repay debt through a debt management plan (DMP). Expect to pay around $50 per month with a DMP versus $50 per month plus high settlement fees with debt settlement.

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While bankruptcy damages your credit and should be a last resort, the court filing fees are generally much lower than debt settlement fees. Meet with a bankruptcy attorney to discuss whether it may be a better option for your situation.

Questions to Ask Debt Settlement Companies

If you do decide to enroll in a debt settlement program, be sure to ask these key questions upfront to avoid surprises:

  • What are your total fees and when are they collected?
  • What is your success rate for settling debts?
  • How long does it take to settle my debts?
  • Will my credit score be impacted?
  • Are there any guarantees I will complete the program?

The Bottom Line

Debt settlement can provide debt relief, but at a steep cost. Fees typically range from 15% to 25% of your total enrolled debt. Weigh the pros and cons carefully, and consider lower cost alternatives like DIY settlement or credit counseling before deciding if debt settlement is your best option.


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