Your cash cost is the amount paid to creditors, plus settlement-company fees and account or other charges. Possible tax on canceled debt is a separate, personal question. A fee percentage or a monthly deposit alone does not tell you the total.
Build the total from separate amounts
Start with the actual debts included in the proposal and their balances on the enrollment date. Then ask the company to put each use of your money on its own line. Keep an estimate distinct from an accepted creditor agreement: the first is a planning assumption; the second has terms you can inspect.
Swipe the table to read every column →
| Cost line | What belongs here | What to check |
|---|---|---|
| Creditor payments | The amount needed to satisfy each accepted settlement | Which accounts are covered, payment dates and the consequence of a missed payment |
| Company fee | The charge for the settlement service | Percentage, dollar base, dollars owed and when each fee is earned |
| Account and transaction fees | Separate administration, setup or payment charges | The complete account agreement and expected number of months or transactions |
| Other quoted costs | Any optional service or separately contracted charge | Whether it is required, who receives it and whether it can be canceled |
| Tax | Possible tax consequences of canceled debt | A separate assessment; do not enter zero merely because the quote omits it |
| Unresolved debt | Accounts the plan has not settled or does not include | Keep the remaining obligation visible rather than treating it as savings |
On a small screen, swipe the table to read every column.
A worked example: 50% less to the creditor is not 50% saved
Suppose one hypothetical debt has a $20,000 enrollment balance. The creditor accepts $10,000. The company charges 20% of the enrolled balance, and the account charges $10 a month for 36 months. These are invented inputs to explain the arithmetic, not a prediction or a recommended offer.
Swipe the table to read every column →
| Line | Calculation | Amount |
|---|---|---|
| Creditor settlement | Agreed amount | $10,000 |
| Company fee | $20,000 × 20% | $4,000 |
| Account charges | $10 × 36 | $360 |
| Cash outlay before tax | $10,000 + $4,000 + $360 | $14,360 |
| Difference from enrollment balance | $20,000 − $14,360 | $5,640 (28.2%) |
| Possible tax / other unresolved costs | Not calculated | Unknown |
On a small screen, swipe the table to read every column.
This example assumes the one debt is fully resolved after every required payment and no additional costs are incurred. If another enrolled account remains unpaid, add that obligation to the decision rather than treating it as resolved. Credit damage and the risk of litigation are also not priced into the example.
Ask: a percentage of what?
A 20% fee based on $20,000 enrolled debt is $4,000. A 20% fee based on a $10,000 reduction is $2,000. The percentages match; the dollar fees do not. Write down the base and calculate the dollars before comparing proposals.
For a fee based on savings, ask how savings are defined and which balance date is used. For an enrolled-debt fee, ask whether the quoted rate is applied account by account and what happens to a debt that is never resolved. The written agreement should answer both the calculation and the collection timing.
What two companies actually disclose
Freedom Debt Relief's FAQ lists a 15%–25% fee based on enrolled debt, with variation by state and amount enrolled. It also identifies separate dedicated-account charges. National Debt Relief's How It Works page describes a fee of up to 25% of enrolled debt. These are those providers' published disclosures checked October 15, 2026—not an industry average, your personal quote or an endorsement.
Source: Freedom Debt Relief; National Debt Relief
A monthly deposit is a funding schedule
If you are asked to deposit $400 every month, ask how much is intended for creditors, company fees and account costs. $400 multiplied by 36 months is $14,400 of planned deposits, not proof that creditors will accept $14,400 or that the plan will finish in three years.
A dollar still sitting in your dedicated account has not also been paid to a creditor. Avoid adding the deposits and the eventual payments together: that would count the same money twice. Instead, reconcile the deposits, actual withdrawals and remaining account balance.
Keep the uncertain costs visible
CFPB guidance explains that stopping payments can increase interest and fees, damage credit and leave you exposed to collection or lawsuits. Creditors do not have to accept an offer. If new charges are already included in the final settlement amount, do not add them a second time to the cash total.
Canceled debt can be taxable, although exceptions and exclusions may apply. A Form 1099-C is not itself a calculation of tax due. Keep tax marked as unresolved until your facts have been assessed; this cost guide does not determine tax eligibility or a tax bill.
Source: Consumer Financial Protection Bureau; Internal Revenue Service
Make the comparison broader than settlement
Ask your creditor about a direct hardship arrangement, and ask a nonprofit credit counselor whether a debt management plan is workable. A debt management plan generally changes repayment terms rather than seeking principal forgiveness. Its total cost and monthly affordability deserve their own column. If neither a payment plan nor a settlement can be funded, a bankruptcy consultation may clarify options.
- Compare the same accounts and starting balances.
- Distinguish offered, estimated and accepted creditor amounts.
- Include company, account and payment-processing fees.
- Leave unknowns visible instead of substituting zero.
- Check whether you can fund every due date while covering essential expenses.
Source: Consumer Financial Protection Bureau; Federal Trade Commission
Common questions
Is the settlement fee included in the amount paid to my creditor?
Do not assume so. A creditor settlement and the settlement company's service fee are different obligations. Ask the quote to show each separately and confirm whether the quoted deposit schedule funds both.
Does a lower monthly deposit mean a cheaper program?
No. It may reflect a longer funding period, different assumptions or omitted costs. Compare the total, what is included and the dates money is needed.
Can I settle debt myself without a settlement-company fee?
You can negotiate directly. That avoids hiring a settlement company, but an acceptable agreement is not guaranteed and the creditor payment, possible tax and other consequences still matter.
Source: Federal Trade Commission
Sources & verification
Checked against the sources below on October 15, 2026. This is educational content; no attorney, CPA or certified financial professional reviewed your situation.
- Freedom Debt ReliefFreedom Debt Relief FAQs — cost and account fees ↗
- National Debt ReliefNational Debt Relief — How It Works ↗
- Consumer Financial Protection BureauWhat is a debt relief program and how do I know if I should use one? ↗
- Internal Revenue ServiceTopic no. 431, Canceled debt – Is it taxable or not? ↗
- Consumer Financial Protection BureauWhat is the difference between credit counseling and debt settlement, debt consolidation, or credit repair? ↗
- Federal Trade CommissionHow To Get Out of Debt ↗