3 hidden debt relief costs that are easy to miss when enrolling
Summary
Debt relief programs can help people reduce what they owe, but there are costs that might not be clear at first. These include fees based on the total debt enrolled, possible taxes on forgiven debt, and higher costs when borrowing money in the future.Key Facts
- Debt relief companies often charge fees between 15% and 25% of the total debt enrolled, not just on the amount reduced.
- These fees are usually included in monthly payments and may reduce the overall savings from the program.
- When a portion of debt is forgiven, the IRS may consider that forgiven amount as taxable income, which can increase your tax bill.
- There is a tax exemption called insolvency that can reduce or eliminate this tax if your debts are greater than your assets, but it requires careful documentation.
- Debt relief programs might require you to stop paying creditors temporarily, which can hurt your credit and make borrowing more expensive later.
- These extra costs can be easy to miss during the early stages of enrolling in a debt relief program.
- Borrowers should carefully review all possible costs and consequences before joining a program.
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