The total cost of debt reduction using a debt relief program is based on a variety of factors. All types of debt relief programs assess a fee and interest continues to accrue on accounts that carry a balance. Debt relief programs can sometimes cost more than other payment options. However, if only the minimum payments for an account are being made you may benefit by using a debt reduction solution.
Damaging Your Credit
Enrolling in debt settlement can negatively affect your credit report. When making payments towards a debt relief program you may pay more in subsequent interest charges is you ever apply for a new credit card or other type of loan. This happens when a credit rating agency dings your credit rating because of your participation in a debt relief program. If you enjoy a high credit rating the affect of entering into a debt relief program can cause you to have higher interest or payments that you would not need to pay if a debt relief program was not used.
Having a Low Balance
Problems that arise when individuals have a low balance but are having trouble making their payments include late fees. When a payment is made after the monthly due date a late fee is assessed. These fees will increase the balance that you owe. This can make you pay more to complete a debt relief program because it will take longer to settle the remaining balance. The reason for this is that late fees if looked at on a percentage basis, will affect a lower balance more than a higher balance. This means that a $25 late fee is a higher percentage for a $2,000 balance than a $6,000 balance.
Program Fee Calculation
To calculate the fee amount that is assessed for a debt relief program you need to determine the amount of debt to enroll. Multiply your debt amount by 0.07. This is the total fee amount that you will typically pay for the first year in a debt relief program. This equals 7 percent of the total debt that is enrolled in a program each year. The standard length for a debt relief program is 36 months.
Tips
When you enroll in a debt relief program you need to determine a payment amount that you can afford each month. If you cancel or terminate the program before the completion date you will forfeit the fees that you have paid.
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