The Fee Structure
Settlement companies charge a percentage of the total debt you enroll -- not the amount they save you. The typical fee is 15-25% of enrolled debt.
| Enrolled Debt | Fee at 15% | Fee at 25% |
|---|---|---|
| $20,000 | $3,000 | $5,000 |
| $40,000 | $6,000 | $10,000 |
| $75,000 | $11,250 | $18,750 |
| $100,000 | $15,000 | $25,000 |
Since the FTC's 2010 rule, companies cannot charge fees until they actually settle an account. But the fees are calculated on the original enrolled balance, not the settled amount.
The True Total Cost
Fees are only part of the cost. The full picture includes:
- Settlement fees: 15-25% of enrolled debt
- Dedicated account fees: Monthly maintenance fees for the savings account ($5-$15/month)
- Accrued interest and late fees: While you stop paying, balances grow by 20-30%
- Tax bill: Income tax on forgiven amounts over $600 (see the 1099-C tax bomb)
- Unsettled debts: Accounts that the company fails to settle still have the full balance plus years of fees
Example: $50,000 enrolled. Fees: $10,000. Interest accrued: $8,000. Tax on $15,000 forgiven: $3,750 (at 25% bracket). Unsettled remaining debt: $12,000. Total cost: $33,750 -- and you still owe $12,000.
Comparison: Settlement Fees vs Bankruptcy Costs
Chapter 7 on the same $50,000: Filing fee $338 + attorney $1,500-$2,500 = $1,838-$2,838 total. All $50,000 discharged. No tax consequences. Done in 3-4 months.
Settlement on $50,000: $10,000-$12,500 in fees alone. Plus taxes. Plus interest. Plus unsettled accounts. Takes 2-4 years. Maybe 60% resolved.