How do debt consultants make money? (2024)

How do debt consultants make money?

Most debt relief companies charge a hefty percentage of your discharged debt as a fee for their services. Each company offers different services. Some of the most common debt relief options include debt consolidation, debt settlement, credit counseling and debt management.

If you offer a lump sum to pay off the debt for less than you owe, understand that no general rule applies to all collection agencies. Some want 75%–80% of what you owe. Others will take 50%, while others might settle for one-third or less.

What does a debt counselor do under a debt management plan? We begin by establishing a reasonable budget that allows you to pay something on your debt each month. You'll make that payment to us, and we'll pay all of your creditors for you, helping to simplify your finances and ensure payments are made on time.

Creditors are not legally required to settle for less than you owe. Stopping payments on your bills (as most debt relief companies suggest) will damage your credit score. Debt settlement companies can charge fees.

$30,845 is the 25th percentile. Salaries below this are outliers. $53,857 is the 75th percentile.

Debt collectors are limited on when they can call you — typically, between 8 a.m. and 9 p.m. They are not allowed to call you at work. They can't lie or harass you. Debt collectors can't make you pay more than you owe or threaten you with arrest, jail time, property liens or wage garnishment if you don't pay.

Some will only settle for 75-80% of the total amount; others will settle for as a little as 33%. Looking for a place to set the bar? The American Fair Credit Counsel reports the average settlement amount is 48% of the balance. Again, start low, knowing the debt collector will start high.

Debt forgiveness may negatively affect credit scores, making it challenging to obtain future loans or credit. Forgiven debt of more than $600 may be considered taxable income, potentially resulting in a hefty tax bill.

Using debt settlement options to reduce debt comes with several risks, including late payments on your credit report, potential charge-offs, settlement company fees, tax implications on forgiven balances, possible scams and the overall risk of settlement offers not working.

Cons. Credit score impact: Debt settlement can negatively impact your credit score, as settled accounts may be reported as “settled” or “charged-off.” A debt settlement may remain on your credit report for up to seven years. Creditor cooperation: Typically, lenders are unwilling to settle current debts.

How much do debt negotiators make?

$49,500 is the 25th percentile. Salaries below this are outliers. $94,000 is the 75th percentile.

How does a debt collection agency make money? Collection agencies typically receive a commission percentage based on either the original invoice amount or the amount of money they collect — usually 25 to 50%. Commissions differ based on debt age, type, balance, and the number of times the account has been used.

Completion rates vary between companies depending upon a number of factors, including client qualification requirements, quality of client services and the ability to meet client expectations regarding final settlement of their debts. Completion rates range from 35% to 60%, with the average around 45% to 50%.

Your credit score will usually take between 6-24 months to improve. It depends on how poor your credit score is after debt settlement. Some individuals have testified that their application for a mortgage was approved after three months of debt settlement.

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

Paying an old collection debt can actually lower your credit score temporarily. That's because it re-ages the account, making it more recent again. This can hurt more than help in the short term. Even after it's paid, the negative status of “paid collection” will continue damaging your score for years.

Harassment and Call Restrictions

Debt collectors cannot harass or abuse you. They cannot swear, threaten to illegally harm you or your property, threaten you with illegal actions, or falsely threaten you with actions they do not intend to take.

What Percentage Should You Offer to Settle Debt? Consider starting debt settlement negotiations by offering to pay a lump sum of 25% or 30% of your outstanding balance in exchange for debt forgiveness. However, expect the creditor to counter with a request for a greater amount.

Can I pay my original creditor instead of collection agency?

Generally, paying the original creditor rather than a debt collector is better. The creditor has more discretion and flexibility in negotiating payment terms with you. And because that company might see you as a former and possibly future customer, it might be more willing to offer you a deal.

Consider Setting Up a Payment Schedule

If your negotiator isn't willing to negotiate on a lump-sum amount, your best option may be to explain your situation to the debt collector and try to agree on an affordable payment schedule.

Unfortunately, there is no such thing as a government-sponsored program for credit card debt relief. In fact, if you receive a solicitation that touts a government program to get you out of debt, you may want to think twice about working with that company.

Is National Debt Relief legit? National Debt Relief is an accredited member of the American Association for Debt Resolution (AADR). It has been around since 2009 and has helped over 600,000 individuals reduce their debt. It also has an A+ rating from the BBB (Better Business Bureau).

Debt settlement might be a suitable way to manage your overwhelming debt, but it could also drive you even deeper into a financial hole, bottom out your already-damaged credit score, and put you in legal peril. So be careful. Debt settlement is risky business. Check into all your other options before you go there.