When you are thinking about signing up with a debt management plan you need to consider how much it will cost you to proceed with that plan. There is no point thinking about a debt management plan if you cannot afford the upfront or monthly cost right?
Compare Debt Management Plan Costs
So let us compare the costs of credit counseling, debt consolidation, do it yourself debt settlement, hiring a debt settlement firm and filing chapter 7 and chapter 13 bankruptcy as these are the most popular ways people use to resolve their debt problems.
Non profit consumer credit counseling may or may not charge an upfront fee or signup fee. Usually this is around $50 or less. And then you have a monthly service fee for the agency to manage your payment and disburse it to your creditors. This usually runs $50 a month or less. There are several that have a service fee at $25 a month.
Debt consolidation comes in many flavors so there is one way to show you all the possible costs unfortunately. You can choose a home equity line of credit. You can consolidate without using a new debt consolidation loan but just working with a third party that will manage your bill payments for you (CareOneCredit does this).
Another way to consolidate is to get a new loan and transfer all your balances to the new card with a lower interest rate. Many of the loan options depend on how good or bad your credit is. If you have good credit you can get a good interest rate and save money possibly unless you start racking up more debt. If you have bad credit you may not get approved for a home equity line of credit or debt consolidation loan at all.
As an example if you have $40,000 in credit card debt at a 19% APR and you were able to get a loan at 10% for 48 months your payment would drop from $1196 a month to $1015 a month. So you possibly save almost $200 a month if you can stick to a rigid 48 month repayment plan and do not charge anything else.
Taking a look at the costs of do it yourself debt settlement, there is a course called Zipdebt which offers coaching through the entire debt settlement process along with debt settlement letter reviews. You can get 6 months of coaching and document review for $397 plus S&H and there are no other costs. You can learn how to settle your debts for as low as 20 cents on the dollar in 6 to 18 months.
Hiring a debt settlement firm will not cost you anything upfront anymore thanks to the FTC but you will have to pay at the end when they are able to settle your debts with the creditors. A debt settlement firm will ask for 10 to 25% of the amount saved through the debt negotiation process. So for example you have $10,000 in credit card debt and they get a settlement of 50%. They saved you $5000 and will ask for $500 to $1250 as their success fee. This is just an example. But this is now how debt settlement companies work – on a contingency fee basis. They only get paid when they are able to successfully settle your credit cards.
A debt expert from UK debt management company Gregory Pennington commented that no-one should enter a debt management plan unless they feel the fees are reasonable.
The costs of bankruptcy filings have gone up as more and more people have been forced to go down this road. The cost of just filing for chapter 7 or chapter 13 bankruptcy is around $300. Then you have to add in the attorney fees because you are strongly encouraged to hire a bankruptcy attorney to file. The average attorney cost for chapter 7 is $1000 so that gives you about $1300 for chapter 7.
The average attorney cost for chapter 13 is $2500 so that gives you about $2800 for chapter 13.
So now you have a quick rundown of what it may cost for the popular debt management plans you may be considering. You need to factor these costs into your debt calculations when you decide on how to want to proceed to take care of your debts.