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Freedom Debt Relief: Is Debt Settlement Right for You?
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Freedom Debt Relief, a debt settlement firm based in California, has been creating custom programs for consumers for nearly two decades.
Debt settlement companies offer to help consumers reduce — and even remove — debt at a fraction of the cost. But using debt settlement services can torpedo your credit score and may result in lawsuits from creditors or endless calls from collectors.
You should consider your options carefully before using a debt relief program such as the one offered by Freedom Debt Relief.
- Freedom Debt Relief: What you need to know
- Freedom Debt Relief FAQs
- Alternative options to debt settlement
Freedom Debt Relief: What you need to know
|Freedom Debt Relief at a Glance|
|Eligibility requirements||$7,500 minimum in unsecured debt|
|Fees||Typically 15.00% - 25.00%, depending on the state in which you live|
|How long it takes||Generally 24 to 60 months|
|Potential savings||Settlements could be for 50% or more depending on how much you owe and where you live, but you’ll pay more depending on what fees you owe|
How debt settlement works
Under a debt settlement program, you pay back a debt in multiple payments that are significantly lower than the total amount you owe.
Typically, the company will ask you to stop paying creditors and save your money until you have a predetermined amount. Then, the debt settlement company contacts the creditors on your behalf to negotiate terms. (This can be risky, but we’ll touch on that later.)
Freedom Debt Relief’s program works in four phases:
- Get free debt evaluation: A certified debt consultant goes over various strategies with you to help determine whether you’re a good fit for the program.
- Set custom plan: The company develops a program that may be cheaper than just making minimum payments. It could also knock out your debt faster.
- Arrange your program: Freedom Debt Relief sets up a Federal Deposit Insurance Corp.-insured bank account in your name where you’ll deposit money to pay off your debts; you’re in complete control of the bank account. When you have enough funds to start paying off the debt, the company will start contacting creditors to negotiate a reduction in your debt. If Freedom Debt Relief reaches an agreement, it’ll immediately contact you to get authorization for the settlement.
- See freedom from debt: Once you’ve paid off your debts, your creditors should report the payments to the credit bureaus when either the account is settled in full, settled, paid, paid by settlement or settled for less than the full amount.
Freedom Debt Relief requires you to have a minimum amount of $7,500 in debt to qualify for its services. Debt relief programs only cover larger amounts of debt, as creditors usually won’t settle smaller debts you could easily pay off in a short period.
It also recommends you enroll any credit card you have with a balance of more than $500.
The company can only help with unsecured debts that don’t require collateral. Federal student loans, auto loans and mortgages do not qualify. However, Freedom Debt Relief can help with medical bills, credit card debt and personal loans. It will accept some private student loans on a case-by-case basis.
|Freedom Debt Relief: Debt settlement eligibility|
|Eligible for debt settlement||Ineligible for debt settlement|
|Credit card debt||Federal student loans|
|Department store charge card debt||Auto loans|
|Personal loans||Utility bills|
Freedom Debt Relief does not operate in the following states:
- New Hampshire
- New Jersey
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
Fees and savings
Freedom Debt Relief is a bit vague regarding fees and how much you can save. It cites a typical fees range of 15.00% - 25.00%, though that depends on the state in which you live. However, the company does not charge any fees until after it negotiates down your debt and you agree to the settlement. So, for example, if the company settles a $15,000 debt, you should expect to pay $2,250 to $3,750 in fees.
As for how much you can save, that depends. As we noted above, Freedom Debt Relief states that you can settle for as little as 50% of what you owe — or even less. But the company notes recent top settlements on its site, and your debt reduction percentage can drop below 50% after you’ve paid your fees.
Freedom Debt Relief — along with all other debt relief companies — must provide information about its program before you sign up, including:
- Price and terms
- How long it should take to see results
- The amount you need to save before the company can start negotiations with creditors
- The possible negative consequences of not making payments to creditors
If the company does not provide these details, you can contact the Federal Trade Commission.
Lawsuit settlement over fees, debts
In July 2019, the Consumer Financial Protection Bureau (CFPB) settled with Freedom Debt Relief over a lawsuit that alleged the company failed to settle debts as promised and misled consumers about fees. Freedom Debt Relief agreed to pay $20 million in restitution and $5 million in civil penalties.
How does Freedom Debt Relief affect your credit?
Working with Freedom Debt Relief may drop your credit score due to nonpayments. You are typically asked to stop making payments on your debt, which would make your account delinquent. Delinquent accounts continue to accrue interest, and creditors may also tack on late fees.
Negative information could remain on your credit report for up to seven years. It’s important to note the IRS may consider forgiven debt taxable income, too.
Is debt settlement with Freedom Debt Relief right for you?
Ultimately, you’ll need to decide what’s more important for you — getting out of debt or keeping your credit score low. If clearing debt is your priority, Freedom Debt Relief might be an option to help reduce what you owe in a fast and efficient manner.
Though it is possible to settle credit card debt if you’re current on your payments, most creditors will only negotiate if you’re able to demonstrate a financial hardship preventing you from making payments. Allowing your payments to go into default lets your creditors know you’re unable to pay, which can help put them into a position to accept a lower amount as a settlement. This can be a risky decision, so make sure you’ve thought everything through.
Freedom Debt Relief FAQs
Is Freedom Debt Relief a scam? No. Freedom Debt Relief is a founding member of the American Fair Credit Council (AFCC), as well as a platinum member of the International Association of Professional Debt Arbitrators. It states that it’s helped more than 600,000 clients resolve more than $10 billion total in debt.
Can I settle my debt on my own? Yes, you can directly negotiate with your credit card company, work with a credit counselor or declare bankruptcy, among other options.
Will debt collectors call me? The short answer is yes, but Freedom Debt Relief’s goal is to have creditors direct their calls to it instead of you.
Will I pay taxes on my settled debt? Most likely yes, as the IRS considers forgiven debt as taxable income. However, it’s best to contact a tax adviser to discuss your situation.
How long does Freedom Debt Relief affect your credit? Entering the program could affect your credit for up to seven years.
Alternative options to debt settlement
- Debt snowball: Make minimum payments on all your debts except for the smallest one. Put extra toward that debt until it’s paid off. Then, take the amount you were paying on the smallest debt and put it toward paying off your second smallest one. You’ll see multiple positive results, which can make paying off large debts easier and more satisfying.
- Debt avalanche: Start from the top by putting extra toward your debt with the highest interest rate. Once that is paid off, take whatever you were putting toward that debt and use it on the debt with the second-highest interest rate. This is a much more aggressive tactic that can help slash your debt quickly, but it can be difficult to maintain if money is tight.
- Debt consolidation: Debt consolidation is when you combine several debts into one. For example, you could take out a personal loan or get a balance transfer credit card to pay off your existing debts. Using this method can help you simplify your payment schedule and could get you a lower interest rate than what you’re paying across several other debts.
- Debt management: Debt management companies, also known as consumer credit counseling agencies, can negotiate to lower your interest rate and fees so that you can pay more to your principal. You would make a monthly payment to your credit counselor, who would pay your various lenders. Beware that debt management programs may come with their own fees.
- Bankruptcy: Bankruptcy can be a last-resort legal process that may wipe away some or all of your financial obligations. It also may let you repay your debt under different terms from the original agreements with your creditors. Chapter 7 bankruptcy involves liquidating your assets to pay off creditors, while Chapter 13 lets you create a repayment plan to pay back most of your debts over three to five years.
Freedom Debt Relief has a history of helping clients get out from under debt, but it’s vital for you to understand the consequences when it comes to your credit score and your ability to receive credit in the future.