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Freedom Debt Relief Review 2023
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Freedom Debt Relief Review 2023
By NerdWallet Follow NerdWallet on social media to stay informed about updates
Dec 20, 2022
Written by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, debt and money management Kathy Hinson leads the core personal finance team at NerdWallet. In the past, she worked for 18 years with The Oregonian in Portland in positions such as copy desk chief and team editor and designer. Prior experience includes copy editing and news for many Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in journalism and mass communications in The University of Iowa.
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Freedom Debt Relief, a company that provides debt settlement services, negotiates with creditors to reduce the amount of debt you owe.
It’s one of the many choices for debt relief that consumers have. It is important to think about whether you’re eligible to another debt solution and compare costs. Also, think about whether Chapter 7 bankruptcy might wipe out more of your debts, and more quickly.
The following article:
What is Freedom Debt Relief? Freedom Debt Relief Works
How to qualify
Freedom works with clients who are in debt due to credit cards, medical bills as well as personal loans as well as students’ private loans and other types of unsecure debt. Generally, you must be in possession of a minimum total debt amount of $7500 to qualify, but some states have laws setting higher requirements for minimums.
As with other debt relief firms, Freedom cannot help clients who have debts that require collateral, like the mortgage or car loan. It also cannot address debt from the federal government student loans.
A typical new client has the average amount of $30,000 worth of non-secured debt spread across eight or nine credit accounts once they have enrolled with Freedom, says Sean Fox, the company’s co-president. The amount of unsecured debt can be from $100,000 to more, with some customers having more than 20 credit cards, Fox adds.
The debt settlement process
You can go online or contact them to do an assessment of your debts and suitability for the program with an Freedom representative. You’ll then have a program summary call that details the settlement program and will be given agreements and documents to accept. That’s followed by an onboarding phone call.
When you have enrolled debts into the program, you are no longer paying for the accounts you have enrolled. Instead, you create an account that is specifically designed to store payments for creditors. You’ll control and own the account and deposit monthly payments into it. Freedom will work with you to determine the amount that will be deposited each month into the account. The amount will be determined by your financial capacity and the amount of total enrolled debt, according to the company.
Whenever you stop paying an account with a creditor, you are in default on the account. You accrue late fees and interest charges, and your credit score will drop. The accounts that are in default remain on your credit reports for seven years.
When money is accruing in the dedicated account, Freedom begins negotiating with individuals on your behalf to negotiate with them for less than the amount you have to pay. The idea is that after months of nonpayment the creditor will be inclined to accept the lower sum rather than risk receiving nothing at all.
If a creditor accepts the lower payoff amount then you must pay the creditor in either a lump sum or in installments, from your dedicated account. You also then pay a fee for Freedom Debt Relief for its service.
Under the legislation, Freedom cannot charge upfront charges; instead, it collects a fee every time the settlement is reached with a creditor, and you have agreed to it and paid at least one installment on it.
The fee ranges between 15% and 25%; it’s dependent on the amount of debt enrolled and can vary based on state laws. A person who is able to settle a credit card balance at $3,000, for instance, will pay between $1,250 and $750 to Freedom for its service.
There’s also a one-time cost of $9.95 to create the special-purpose account. There’s also the monthly cost of $9.95 that covers account servicing, Fox says. These fees are charged by the host company of the account but not through Freedom.
Freedom states that the majority of customers get their first payment within three months, but it can take longer depending on the amount you save every month, the amount of accounts you have enrolled into the program, as well as the amount owed for each one. Freedom states that customers who are committed to timely monthly payments to their designated accounts will pay off all outstanding debts within 2 to 4 years typically.
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Freedom Debt Relief at a glance
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What to know concerning Freedom Debt Relief
Responds promptly to complaints from customers
Freedom has an A+ rating on the . It has received more than 350 customer complaints in the last three years, and has received complaints about issues with its services and problems with billing and collection. Notably, the company has a 100% response rate to complaints from customers through the BBB.
In 2017, the firm was accused of being sued by the Consumer Financial Protection Bureau, which alleged the company charged customers without paying their debts according to the terms they promised, made people settle their own debts, and misled customers about its fees.
In July, Freedom settled the CFPB suit by signing a settlement agreement to pay $20 million compensation to consumers affected and an additional $5 million civil penalty (zero) Consumer Financial Protection Bureau . . Accessed Nov 12 in 2020.
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Dangers associated with debt settlement
The risks and drawbacks associated with debt settlement are:
It can affect your credit score
As you’re required to stop paying your outstanding debts in order to join an agreement to settle your debts the accounts will be marked delinquent in your credit report. Your credit score is likely to take a significant hit, potentially affecting future credit applications, and even employment. Delinquent accounts can be held for seven years, and so do accounts charged off by lenders.
The odds of success aren’t always certain.
Certain creditors might offer to sell the debt you owe to a third party collection agency or the buyer of debt. Freedom states that it negotiates with the third-party and will coach its clients to negotiate directly with creditors. However, the results may differ.
The interest and fees build up
Over the period in which you’re in a debt settlement program, you’ll accrue additional interest and late fees on your debt. If you fail to remain with the program enough to finish the program, or if Freedom is unable to reach an agreement, you’ll be stuck with the higher balance.
You could still get a call from debt collectors
When you don’t pay your bills and you stop paying your bills, you could face aggressive collection efforts, or even claims from the creditors. Freedom says it encourages customers to inform creditors that they are working with the settlement firm and to send messages to Freedom through their own online dashboard.
A forgiven debt can be tax-deductible
Because the IRS accepts forgiven debt to be taxable income, it’s possible you’ll owe taxes on the debt you no longer had to pay after settling. Certain creditors will mail an Annulment of Debt form . One exception is if you are insolvent (have more debt than assets) at the time you settle your debts with your creditors.
Talking to an attorney or tax professional for more advice is recommended.
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Freedom Debt Relief vs. other alternatives
Before choosing debt settlement, understand other options, which include debt payoff and other options:
Debt management plan
This could be a good alternative for someone with a steady income to repay credit card debts in 3 to 5 years. You’ll pay a nonprofit credit counseling company to combine your debts into one monthly payment at a reduced interest rate. But you won’t have access to credit lines or the ability to utilize your credit cards during the payoff period.
Consolidation of debt
With this option, you’ll transfer multiple debts into one new debt, typically via a account that allows you to transfer balances, or . The new loan should have lower interest rates than the previous debts which could help you pay off debts faster. However, it usually requires excellent to excellent credit scores to be able to qualify, or to obtain favorable conditions.
The bankruptcy process can help you pay off your debt under protection from a federal court. It typically eliminates most non-secured debts within 3 to 6 months, however not all people qualify. If you’re in delinquency on your debt, filing for bankruptcy will stop calls from collectors and lawsuits filed against the debtor. Your credit may take a hit, as with debt settlement, but research shows credit scores are likely to improve within one year.
DIY debt settlement
You can pick up the phone, call your creditors and discuss the matter with them on your own. As with the use of a debt settlement firm, success isn’t guaranteed, but it could help you save time and cash.
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