When we talk to customers each day, there are many questions that come up during almost ever client interaction. One of those questions is, "How does your debt settlement company get paid", or "What are your company's fees"? The answer is extremely simple to answer, but also very important to understand how a debt settlement company earns their fees. Per the American Fair Credit Council (AFCC), the national trade association for the debt settlement industry, a debt settlement company needs to follow 3 rules before they can collect any fees from their client.
On the AFCC's website, the following paragraph can be found:
"Negotiations with creditors usually begin after sufficient funds have accumulated in the client’s dedicated account, generally around 20 percent of any given debt. Debt settlement firms collect fees on a per-debt basis directly from clients. By law, three conditions must be met before any per-debt fees can be collected from clients: (1) the firm must successfully negotiate the terms of settlement for a given debt, (2) the client must agree to the terms of the negotiated settlement for the debt, and (3) the client must make at least one payment to the relevant creditor as a result of the negotiated settlement agreement."
Why is this important to you, the consumer? It is easy to explain, as Debt settlement companies cannot collect any fees until they actually begin to settle debt with Creditors. The best analogies are that the Debt settlement companies have "skin in the game" or are "only paid for performance". This is advantageous to consumers because it protects them from paying any upfront costs and not getting any results.
Before you begin to work with any debt settlement companies, it is extremely important to ensure they are following the law as outlined in the above AFCC guidelines on how Debt settlement companies charge their fees. These laws were clearly built to protect consumers while ensuring Debt settlement companies are motivated to deliver results for their clients.
For more information about debt settlement or debt consolidation, see our Debt Settlement facts page.