Cost:  

Debt Management

As with all debt management plans, creditors pay what is essentially a commission to Care One or any other credit counseling agency for their assistance in recovering debt that might otherwise become uncollectible. In addition to that, they charge the client a $50.00 account servicing fee. That fee can vary depending on the client’s state of residence. Other than that service fee, all money paid by the client to Care One is paid to creditors.

Care One negotiates with clients’ creditors to get interest rates reduced and also to have other charges and fees reduced or eliminated. As a result of those reductions, a much larger portion of a client’s payments to creditors go to pay off the original debt rather than primarily paying interest and fees. The case we presented as a comparative example with a total of $17,900 in unsecured debt spread across six creditors would take approximately 440 months, or 36 years and 8 months to pay off just making minimum payments. Care One estimated that with the interest rate reductions they could anticipate, our test debt could be paid off in about 59 months, or just under six years. That’s a dramatic difference but it illustrates the power of compound interest.

It must be noted that with Care One or any other debt consolidation service, the actual cost of payoff and time required to do so can only be estimated initially. Final costs won’t be available until actual negotiations with creditors have been completed.

Debt Settlement

Care One urges its clients to engage in debt management if possible. That way, when the program is completed, the client will truly have paid of his debts. Sometimes, however, the debt hole is so deep that a client can’t afford the necessary payments to do that. That’s where debt settlement comes in. As the term implies, in this scenario, creditors ‘settle’ for something less than they are owed, but, they reason, it’s better than getting nothing which is what they’d be likely receive if the debtor were to file for bankruptcy.

Unlike debt management, creditors don’t pay for debt settlement. That certainly makes sense given that in the process they’re likely to get only half or less of the amount they are owed. Care One charges the client 15% of the entire debt as a fee for performing debt settlement on his behalf. That fee is typical of those charged by other firms in the industry and it is included as a portion of the total monthly payment that is made by the client.

In order for debt settlement to come into play, debts must generally be between at least 90 and 180 days past due. If they’re not already, Care One will have the client stop making payments. Instead the payments are made to them and held in trust until such time that they are overdue to that degree. By that time, creditors will typically have turned debt over to a collection agency and Care One will negotiate with them to get the total amount of the debt reduced substantially.

Like debt management, actual amounts that a client will eventually pay can only be estimated. During the time that the debt settlement is in progress, interest and fees are likely to continue to accumulate. Calls from creditors or their collection agents will also probably continue. Care One settles debts as the amount of money that has accumulated with them reaches levels that creditors will agree to a negotiated amount. The amount of time required to complete the debt settlement process is usually much less than for debt management because the entire debt is never paid.