How Much Does Credit Card Debt Settlement Cost?
by admin on 13/04/10 at 6:56 am
In the United States, credit card debt settlement is heavily promoted on radio, television, and internet advertisements. With so much expensive marketing, it leads us to the logical question… exactly how much are they making off their customers? Well, here’s the answer…
First of all, you will need to understand how this form of debt settlement works. Let’s say you have $10,000 in credit card debt. This debt could be one card, or it could be spread across several cards with different issuers (for example, a Citibank card, an American Express Green card, a Capital One card, etc.). The settlement company will instruct you to default your minimum payments and instead, pay them a large monthly fee (i.e. a fee ranging from $500 to $1,000 per month). After several months, the settlement company will then have several thousand dollars saved up. They will then go to the credit card companies to try and negotiate a settlement for less than you owe, using that lump sum of money. They will also keep a cut of that amount for themselves, which could range from several hundred to several thousand dollars.
This system may sound good in theory, unfortunately it can be quite costly. Kara of CreditCardForum.com states “Once they have you default on your minimum payments, your APRs will shoot up to the default interest rate. So your debt will actually be growing exponentially, before the settlement negotiation even takes place.” She also says it could negatively impact your credit record. “Once you are 90 days late on accounts, in some cases, it hurts your FICO score as bad as a bankruptcy does. This will make it very hard to qualify for new credit cards. In fact, you probably won’t even be approved for the basic American Express Green Card for at least three to five years.”
