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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 for updates
Dec 20, 2022
Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. In the past, she worked for 18 years at The Oregonian in Portland in capacities such as chief of the copy desk and team editor and designer. Previous experience included news and copy editing at several Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in mass communications and journalism at the University of Iowa.
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Freedom Debt Relief, a service provider for debt settlement that negotiates with creditors to reduce the amount of unsecure debt you are obligated to.
is one of several choices for debt relief that consumers have. It is worth considering whether you’re eligible for another debt solution and compare fees. Also, think about whether Chapter 7 bankruptcy might wipe out more of your debts, and more quickly.
The Way Freedom Debt Relief Works
How do I qualify?
Freedom offers assistance to customers with debts from medical bills, credit cards as well as personal loans as well as students’ private loans and various other forms of unsecure debt. Generally, you must have a minimum total debt of $7,500 in order to qualify, but some states have laws setting higher requirements for minimums.
Similar to other debt relief businesses, Freedom cannot help clients who have debts that require collateral like an auto or mortgage loan. Freedom also is unable to address the debt arising from federal student loans.
A typical new customer has an average of $23,000 in unsecure debt spread across eight to nine credit accounts once they have enrolled with Freedom as per Sean Fox, the company’s co-president. The amount of unsecured debt can range up to $100,000 or greater, with some clients with more than 20 credit accounts, Fox adds.
The debt settlement process
You can go online or contact them for an analysis of your debts as well as your eligibility for the program with a Freedom representative. After that, you’ll receive a program overview call, which outlines the settlement plan and will be given an agreement and disclosures to take a signature. Then, you’ll be given an onboarding phone call.
Once you enroll debts in the program, you cease paying for the accounts you have enrolled. Instead, you create an account specifically to store payments for creditors. You’ll control and own the account, and you’ll deposit monthly payments into it. Freedom works with you determine the amount to be every month deposited into the account. The amount is determined by your ability to pay and the amount of total outstanding debt that you have enrolled, according to Freedom’s.
If you do not pay an account with a creditor, you are delinquent on the account. There will be late fees as well as interest charges as well as your score will drop. The accounts that are in default remain on your credit report for seven years.
As money accrues in the dedicated account, Freedom begins negotiating with individuals on your behalf, in order to get them to accept less than the amount you owe. The idea is that , after several months of insufficient payment the creditor will be motivated to take the lesser amount rather than receiving nothing at all.
If a creditor accepts the lesser amount of payoff, you pay the creditor, either by lump sum or installments, from your dedicated account. In addition, you have to pay an additional fee towards Freedom Debt Relief for its service.
By law, Freedom cannot charge upfront fees; rather it charges fees each time it has reached a settlement with a creditor after you have approved it and paid at least one payment to it.
The cost ranges from 15% to 25%, based on the amount of the debt that is enrolled. It could vary according to state regulations. A customer who is able to settle a credit card balance for $3,000, for instance, will pay between $750 and $1,250 to Freedom for its service.
Additionally, there’s a one-time charge of $9.95 to create the special-purpose account. There’s also an annual fee of $9.95 that covers account servicing, Fox says. The fees are imposed by the hosting company that hosts the account, not by Freedom.
Freedom says most customers receive their first settlement within three months, but it can take longer depending on the amount you save every month, the amount of accounts enrolled in the program, as well as the amount of debt on each account. Freedom states that customers who are committed to timely monthly payments into their dedicated accounts resolve all of their indebtedness within two to four years, on average.
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Freedom Debt Relief at a glance
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What do you need to know about Freedom Debt Relief
Responsive to customer complaints
Freedom has an A+ rating at the time of the . It has received more than 350 customer complaints over the last three years, including complaints about issues with their service as well as problems with billing and collection. Notably, the company has a 100% response rate for customer complaints via the BBB.
In 2017, the company was sued by the Consumer Financial Protection Bureau, that claimed the company billed people who did not pay their debts in the manner stated, forced people to negotiate their own settlements and misled consumers about the fees.
In July of 2019, Freedom settled the CFPB lawsuit by accepting to pay $20 million compensation to the affected consumers as well as a $5 million civil penalty (zero) Consumer Financial Protection Bureau . . Accessed November 12 20th, 2020.
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Risks of debt settlement
The risks and drawbacks associated with debt settlements include:
It can affect your credit score
Since you’re required to stop making payments on outstanding debts in order to be enrolled into the debt settlement program, those accounts will show as delinquent on your credit reports. Your credit scores will suffer a major hit which could impact future credit applications or even work. Delinquent accounts can be held after seven years and so do the accounts that are charged by lenders.
The odds of success aren’t always certain.
Some creditors may sell your debt to a third party collection agency or debt buyers. Freedom says it deals with the third-party and will coach its clients to resolve their debts directly with creditors, but the results may differ.
The interest and fees build up
Over the period in which you’re enrolled in an agreement to settle your debt and you’ll be charged additional late fees and interest in your loan. If you fail to stay in the program long enough to finish it or in the event that Freedom is unable to reach a settlement, you’ll be stuck with the higher balance.
You may still hear from debt collectors
When you stop paying your accounts You could be subject to aggressive collection efforts or legal action from creditors. Freedom says it encourages clients to tell creditors they are working with the settlement firm and to upload documents to Freedom via their own personal online dashboard.
A forgiven debt can be tax-deductible
Because the IRS considers forgiven debt as income that is tax deductible, it’s possible you’ll owe taxes on the debt that you no longer have to pay once you settled. Certain creditors will provide the Cancellation of Debt form . The only exception is when you’re insolvent (have more liabilities than assets) when you settle debts with your creditors.
Speak to an attorney or tax professional for further guidance is strongly recommended.
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Freedom Debt Relief vs. other options
Before choosing debt settlement be aware of other options, such as debt payoff and other options:
Debt management plan
This is a possible alternative for those with an income steady enough to pay back credit card debts within 3 to 5 years. The credit counseling agency to reduce your debts to one payment per month with a lower rate of interest. But you won’t have access to credit lines or utilize your credit cards during the payoff period.
This option lets you combine multiple debts into one new one, typically through a balance transfer credit card or . The new loan should have lower interest rates than the previous debts, potentially helping you pay off debts faster. But it often requires excellent to excellent credit scores to be able to qualify, or to obtain favorable conditions.
Bankruptcy is a way to resolve your debt under protection from the federal court. will typically erase most non-secured debts within three to six months, however not all people qualify. If you’re delinquent on debt, declaring bankruptcy will stop calls from debt collectors as well as lawsuits filed against you. Your credit score will suffer a blow, just similar to debt settlements however, research has shown that credit scores are likely to improve within one year.
DIY debt settlement
You can pick up the phone and call your creditors, then negotiate with them yourself. Like using a debt settlement company the odds of success aren’t 100 but it could help you save time and money.
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