Debt relief costs vary widely depending on the method—debt payoff apps are often free or inexpensive, while debt settlement and bankruptcy can cost thousands of dollars in fees.
Luckily, there are many ways to get out of debt. We’ll go over the costs for five popular debt relief options: debt settlement, credit counseling, debt consolidation, debt payoff apps, and bankruptcy.
Key Takeaways
- Debt settlement companies: Often 14% to 30% of your debt
- Credit counseling agencies: Many services are free, but a debt management plan typically costs from $0 to $35 to set up, with a monthly fee ranging from $0 to $75.
- Debt consolidation loans and credit cards: Interest fees, origination fees, and—for balance transfer credit cards—balance transfer fees
- Debt payoff apps: $0 to around $90 per year, although there is much variability
- Bankruptcy: $400 to $3,000 or more
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The term “debt relief” often refers to debt settlement companies, but it’s also used as an umbrella term to describe just about anything meant to help ease the financial strain from debt. Many types of loans have specific debt relief options, such as recasting a mortgage or the different income-driven payment plans available for federal student loans. When it comes to anything other than simple unsecured debt (like personal loans and credit cards), it’s best to research the specific debt and contact your lender for assistance.
Costs of Debt Settlement
Debt settlement companies are usually the first results to pop up in Google if you search for debt relief. These companies seem to have large marketing budgets and plenty of allure. Who wouldn’t want to settle their debt for less than they owed, especially considering there are no upfront fees?
Unfortunately, the costs of debt settlement aren’t always obvious. These companies require you to stop paying your debts entirely, instead paying into a third-party savings account. They’ll use this money as a bargaining chip to negotiate a lump-sum settlement payment for less than you owe—but this means you’ll end up defaulting on your debt. As you might expect, this can be very costly in the long run.
Debt settlement companies start with a free consultation to go over your financial situation and your credit. This gives you a chance to learn about the company and what it can do for you, but don’t be surprised if the representative tries to sell you the service.
Now, let’s consider the direct fees for debt settlement:
- Settlement fees: These fees range from 14% to 30% of your debt, but they’re only paid on debts that the company successfully negotiates. Some debt settlement companies base this fee on the amount of settled debt, while others base it on the amount of enrolled debt (again, only concerning accounts that are settled; if the company can’t negotiate one of your debts, you wouldn’t pay fees for that debt).
- Monthly account fees: You may be charged a setup and/or monthly fee for the third-party savings account that debt settlement companies require you to use to build up your lump sum payment.
More importantly, the indirect costs of debt settlement include:
- Income taxes: You’ll generally be required to pay taxes on the amount of debt your creditors forgive when you file your taxes at the end of the year. Depending on your tax bracket, that could amount to 10% to 37% (in 2024) of the amount that your creditors forgave.
- Credit damage: Creditors will report late payments, defaults, collections, and debt settlements on your credit reports, which can cause serious damage to your credit. A closed, delinquent account will generally stay on your credit reports for seven years.
- Late payment fees: Creditors will charge late payment fees, which can cause the amount you owe to increase while you’re not making payments on your debt. These fees add to your balance and can be included in settlements, but if the debt settlement company isn’t successful, you’ll owe all those extra fees, too.
- Unsuccessful debt settlement: Although old, one 2007 Federal Trade Commission analysis found that only about half of people successfully completed a debt relief and settlement program. People who don’t complete the program can end up with worse credit and in more debt than they started with.
If you’re considering debt settlement, it’s important to work with a trustworthy company that doesn’t charge extra-high fees. See the best debt relief companies to explore our top picks.
Costs of Credit Counseling
Credit counseling is a broad term that refers to any support you get from a dedicated credit counseling organization, most of which are nonprofit. These organizations assign a counselor to work with you one-on-one, going over your financial situation and debt profile. They can help you decide on the best way to alleviate your debt burden—including secured debt such as mortgages and student loans—and may even contact your creditors on your behalf.
Credit counseling agencies also offer debt management plans (DMPs), working with your creditors to modify your debts so they’re more affordable (these plans may only be available for unsecured debts). The agency may be able to negotiate lower interest rates and/or lower monthly payments for debts in the DMP. You’ll send in one monthly payment to the agency until all of the debts included in the DMP are paid off in full, which typically takes three to five years.
Most services provided by credit counselors are free (including your initial consultation), unless you sign up for a debt management plan. Fees for a DMP may be based on the customer’s income. Here are the associated costs of the major players in the industry, according to Investopedia research:
- Debt management plan setup fee: $0 to $99
- Debt management plan monthly fee: $0 to $75
You typically need to close any credit cards you enroll in a DMP. And, although credit counseling and debt management plans don’t have a negative effect on your credit score themselves, canceling your credit cards may bring your score down. Your credit reports may also show accounts in DMPs, and lenders can see that information.
Wondering how to deal with your debt, and want some personalized advice? See the best credit counseling services to talk to someone about your debt and finances.
Costs of Debt Consolidation/Refinance
Consolidating your debt can be a good option if you have a decent handle on your finances already, and you’re just looking to save some money or get a more manageable payment. You can consolidate multiple accounts into a single monthly payment, or just refinance a single debt account.
Debt consolidation usually takes two forms: taking out a personal loan for a lower interest rate and/or a different term length, or opening a new 0% APR balance transfer credit card featuring a months-long interest-free runway to help you get ahead of your debt.
If you get a lower rate, you can save money over time. If you get a longer repayment period, you may get some breathing room with a lower monthly payment—but this can make the debt more expensive overall.
Here are the costs you can expect to pay for a personal loan:
- Loan interest: Loans charge interest from the start, albeit at a lower overall rate on average than credit cards (unless you get a 0% APR credit card).
- Origination fees: Loans often come with origination fees ranging from 1% to 6% or more, especially if you don’t have good or excellent credit.
And here are the main costs for a balance transfer credit card:
- Annual fees: Balance transfer cards may come with annual fees, which are sometimes waived in the first year. The best cards don’t charge such a fee, however.
- Balance transfer fees: Most balance transfer cards charge a balance transfer fee, typically ranging from 3% to 5% of the transfer amount.
- Credit card interest: A 0% APR balance transfer card will start charging interest at the end of the 0% intro period, giving you a good incentive to pay down as much as you can during the interim. It’s also possible to lose your 0% rate if you miss a payment. And, if you make any purchases with the card, that spending will accrue interest at the purchase APR (which may or may not be 0%).
The cost for you depends on your personal credit and the overall interest rate environment to a large extent. If you’re in a low-interest-rate environment and you have excellent credit already, you’ll likely qualify for very inexpensive loans and credit cards. If you have bad credit and/or rates are high all around, it may be hard to find options for less than you’re already paying.
If you don’t qualify for a 0% APR balance transfer, you may still be able to transfer a balance to a credit card—but it probably won’t be a cost-saving move, because normal credit card rates tend to be relatively high.
Costs of Debt Payoff Apps
Anyone can use debt payoff apps to help manage or get ahead on their debt, even if they’re not currently struggling. There are many types of apps and they work differently. Two popular types are debt planners and round-up apps.
Debt payoff planners help you calculate the best way to pay down your debt (such as with the debt avalanche or debt snowball method), while round-up apps link up with your debit or credit cards to round up each purchase you make to the nearest dollar. That difference gets saved up and periodically sent to your lender as an extra payment to help you make quicker debt payoff progress.
Here are a few examples of debt payoff apps, along with their costs.
| App | How It Works | Cost |
|---|---|---|
| Undebt.it | Create a debt payoff plan and monitor your progress | Free, or $12/year for premium subscription |
| Debt Payoff Planner | Create a debt payoff plan and monitor your progress | Free, or $2/month for premium subscription |
| Qapital | Create an automated holistic financial plan, including a debt payoff plan | Free 30-day trial, then $3–$12/month |
| Bright Money | Create an automated financial plan, including round-ups to pay down debt faster | $10/month–$89/year |
| Debt Payoff Assistant | Very basic debt snowball planning tool | Free |
Costs of Bankruptcy
Bankruptcy is the last resort for many people, allowing them to discharge many common debts in court. There are two main types of bankruptcy you can file: Chapter 7, where you sell most of your assets to pay off your debt (barring certain exemptions that vary by state, which can include your house), and Chapter 13, which allows you to make payments for three or five years.
After you complete the requirements of your particular bankruptcy type, you’ll be free of those debts. Here are the costs you can expect to pay along the way:
- Court costs: You’ll typically need to pay over $300 to file various documents with your local bankruptcy court (fee waivers or installment payments are sometimes accepted).
- Attorney fees: Expect to pay between $1,000 and $2,000—or more—to hire an attorney.
- Credit counseling/debtor education course fees: Those who file bankruptcy must enroll in credit counseling and debtor education courses. The price for each course is capped at $50, although you’ll often pay less than half of that.
Unlike debt settlement, you generally won’t owe a large tax bill on any debts that are discharged in bankruptcy proceedings. It still comes with a few other drawbacks that you should know about, however:
- Credit damage: Bankruptcy stays on your credit reports for up to 10 years. During that period, it may be difficult for you to get approved for credit, utilities, and even rental housing. The severity of the negative effects decreases over time, however.
- Social stigma: People who file for bankruptcy may be treated poorly by others, even if the debt wasn’t their fault in the first place.
Still, the benefits of discharging an overwhelming amount of debt may be worth the cost.
If you’re considering bankruptcy, chances are you don’t have a lot of extra money lying around. But there are ways to get help paying for an attorney. “In many cases, those who are filing Chapter 7 bankruptcy—or ‘liquidation’ bankruptcy—will stop paying their debt bills and use those funds to pay for legal help,” said Leslie Tayne, founder and head debt relief attorney at Tayne Law Group, P.C. “In other situations, lawyers may offer a payment plan or some other billing situation that makes sense for a person’s financial situation.”
Don’t forget to look up free legal aid clinics and support available in your area, especially if you’re on a limited income or from an underserved community.
When Should You Seek Debt Relief?
There aren’t any hard and fast rules about when you should seek out debt relief. However, most experts agree you should consider it if you’re in debt and are having trouble making ends meet, especially if you’ve tried DIY solutions.
“There are debt relief options for just about anyone who owes money,” said Tayne. “Generally, though, once you know there’s an issue with keeping up on payments, that’s the best time to look for a debt relief option.”
It can be wise to let your lender know when (or before) you have trouble paying, because some offer hardship programs to help you meet your obligations. And credit counseling services offer free consultations, so there’s little harm in trying. A credit counselor may be able to help you figure out which method is right for your situation.
Other options you can try before—or alongside—debt relief programs include:
- Starting (or refining) a budget
- Asking for help from family and friends
- Cutting expenses and increasing income
The average household was $23,317 in the red, excluding mortgage debt, in the second quarter of 2023. That kind of debt can add unhealthy stress to your life, making it harder to make ends meet and get ahead in life.
The Bottom Line
You should take the time to consider debt relief costs when deciding on the best option for your financial situation. However, there are sometimes ways to get help paying, even for expensive options like bankruptcy.
Factoring in the costs is certainly important, but in many cases, it’s better to focus on the method that’s most likely to help you get out of debt in the long run while doing the least amount of damage in the meantime. For that, you’ll need to consider other factors too, such as your relationship with money, your credit, your behaviors, relevant state laws, your family situation, future financial goals, and more.
Do Debt Relief Companies Charge a Fee?
Generally, yes; most types of debt relief companies charge some type of fee, although some options are free. Here’s a quick rundown of the costs you can expect, according to Investopedia research:
- Debt settlement companies: Typically 14% to 30% of your debt
- Credit counseling agencies: Certain services are free, but a debt management plan typically costs from $0 to $35 to set up, with a monthly fee ranging from $0 to $75.
- Debt consolidation loans and credit cards: Interest fees, origination fees, and for balance transfer cards, balance transfer fees
- Debt payoff apps: $0 to around $90 per year, with much variability
- Bankruptcy: $400 to $3,000 or more
How Does Debt Relief Affect Your Credit?
Different debt relief methods have different effects on your credit. Debt payoff apps, credit counseling, and debt management plans don’t have any direct impact on your credit score. At the other end of the extreme, bankruptcy and debt settlement have the potential to cause severe damage to your credit that can take years to overcome.
How Long Does Debt Relief Last?
Depending on the type of debt relief program you choose, it could be very quick or take a long time. If you’re just looking for help in making your payments, consolidating your high-interest debt into one personal loan can sometimes be completed in a day. On the other hand, a Chapter 13 bankruptcy repayment plan can take up to five years to complete.
Is Debt Relief Worth It?
“In general, if you take the time to research your options and choose a reputable organization or professional, the initial costs will be transparent from the get-go and well worth the savings and relief you get as a result,” said Tayne. To ensure you’re happy with your decision, it’s important to compare all your options and research the full range of costs, including indirect ones such as taxes owed on settled debt.
How Much Debt Is Too Much?
If you’re having trouble making your monthly payments, you have too much debt. A more specific number to keep in mind, especially for would-be homebuyers, is a debt-to-income ratio of 43%; above this mark, most lenders won’t approve you for a conventional mortgage. Some debt-averse people are more concerned about the total amount of their debt. By paying down their debt faster they may be able to sleep better at night, even if their monthly payments are currently manageable.
