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Freedom Debt Relief Review 2023
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Freedom Debt Relief Review 2023
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Updated Dec 20, 2022 12:05PM PST
Written by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring financial management and debt Kathy Hinson leads the Core Personal Finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years at The Oregonian in Portland in capacities such as chief of the copy desk and team editor and designer. Her previous experience included copy and news editing for several Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in journalism and mass communications from the University of Iowa.
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Freedom Debt Relief, a debt settlement services provider, negotiates with creditors to reduce the amount of unsecured debt you are obligated to.
is among the various debt relief options consumers have. It is worth considering whether you might qualify for another debt solution and compare costs. Also, think about what Chapter 7 bankruptcy might wipe off more debtfaster.
In this article:
What is Freedom Debt Relief? Freedom Debt Relief Works
How to qualify
Freedom works with customers who have debt from medical bills, credit cards and personal loans and personal student loans and other types of unsecure debt. Generally, you have to be in possession of a minimum total debt balance of $7,500 to qualify, but certain states have laws that require higher requirements for minimums.
Similar to other debt relief businesses, Freedom cannot help clients with debt that is collateral, like a mortgage or car loan. The company is also unable to help with the debt arising from federal student loans.
A typical new customer has the average amount of $30,000 in unsecured debt across eight to 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 have 20 or more credit cards, Fox adds.
The debt settlement process
You can go online or contact them to discuss an evaluation of your debts and suitability for the program with an Freedom representative. After that, you'll receive a program overview call, which outlines the settlement plan, and be given an agreement and disclosures to sign. This is followed by an onboarding phone call.
After you've enrolled your debts in the plan, you are no longer making payments to the accounts. Instead, you establish an account that is specifically designed to hold payments for creditors. You'll be the owner and manager of the account and make monthly installments into it. Freedom works with you to determine the amount to be every month deposited into the account. The amount will be determined by your financial capacity and the total amount of indebtedness, according to the company.
If you do not pay a creditor, you become delinquent on that account. There are late fees and interest charges plus your credit rating decreases. Delinquent accounts stay on your credit reports for seven years.
As the money accumulates in the designated account, Freedom begins negotiating with the individual creditors on your behalf in an effort to convince them to take less than what you owe. The idea is that , after several months of insufficient payment the creditor will be driven to settle for a lower sum rather than risk getting nothing at all.
If a creditor agrees to the lower payoff amount then you must pay the creditor in either by lump sum or installments, from your dedicated account. Then, you pay the fee for Freedom Debt Relief for its service.
Cost
According to laws, Freedom cannot charge upfront charges; instead it charges an amount whenever it has reached a settlement with a creditor, and you have approved the settlement and made at least one payment on it.
The fees range between 15 and 25%; it's determined by the size of debt enrolled and could vary according to the regulations of your state. If a person pays off a credit card with a balance with a balance of $3,000 for example, would pay between $750 and $1,250 to Freedom for its service.
Additionally, there's a one-time charge of $9.95 to establish the special-purpose account, and a monthly fee of $9.95 that covers account servicing, Fox says. These fees are charged by the company hosting that account, not by Freedom.
Time frame
Freedom says most customers receive their first payment within three months, but it may take longer based on the amount you save each month, the number of accounts you have enrolled into the program, and the amount of debt for each one. Freedom says clients who commit to on-time monthly payments into their designated accounts resolve all of their outstanding debts within 2 to 4 years on average.
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Freedom Debt Relief at a glance
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What should you be aware of concerning Freedom Debt Relief
Reliable to customer complaints
Freedom is rated A+ rating on the time of the . It has received over 350 complaints from customers over the past three years, including complaints about issues with their service as well as issues with billing and collection. The company also boasts a 100% response rate to complaints from customers through the BBB.
Lawsuit
As of 2017, the firm was sued by the Consumer Financial Protection Bureau, which alleged the company charged people who did not pay their debts according to the terms they promised, made people settle their own debts, and misled consumers about the fees.
In July of 2019, Freedom settled the CFPB lawsuit , signing a settlement agreement that it would pay 20 million damages to consumers affected and the civil penalty of $5 million. [0] Consumer Financial Protection Bureau . . Accessed Nov 12 20th, 2020.
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The risks of the process of debt settlement
The potential risks and drawbacks with debt settlements include:
It hurts your credit
Since you're required to stop paying your outstanding debts in order to be enrolled into the debt settlement program these accounts will show as delinquent on your credit reports. Your credit scores will be severely affected, potentially affecting future credit applications and even job. Delinquent accounts can be held for seven years, or more, are also considered delinquent, as are the accounts that are charged by lenders.
It's not guaranteed.
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 may coach some clients to settle directly with creditors. However, the results may differ.
Fees and interest accumulate
Over the period in which you're in a debt settlement program there will be additional fees for late payments and interest on your debt. If you fail to remain in the program for long enough to finish it or if Freedom does not negotiate a settlement, you'll be stuck with the 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 legal action from creditors. Freedom says it encourages clients to notify creditors that they are working with the settlement firm and to send messages to Freedom via their personal online dashboard.
A forgiven debt can be tax-deductible
Because the IRS accepts forgiven debt as taxable income It's possible that you'll have to pay taxes on the debt you no longer had to pay after settling. Some creditors will provide an Annulment of Debt form . One exception is if you are insolvent (have more liabilities than assets) when you settle your debts with your creditors.
Talking to a tax professional or lawyer for further guidance is recommended.
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Freedom Debt Relief vs. other alternatives
Before settling on a debt settlement option be aware of other options, which include debt payoff , and other alternatives:
Debt management plan
This may be a better option for someone with an income steady enough to pay back credit card debts in three to five years. You'll pay a nonprofit credit counseling company to consolidate your debts into one monthly installment with a lower rate of interest. However, you won't be able to access to new credit or the ability to utilize your credit cards until the time of payoff.
Debt consolidation
With this option, you'll transfer multiple debts into one new debt, usually via a account that allows you to transfer balances or . The new debt will have an interest rate lower than the old ones and could allow you to pay off debts faster. But it often requires an excellent or good credit score to be able to get the best terms.
Bankruptcy
The bankruptcy process can help you pay off your debt with protection from a federal court. Most people can eliminate their non-secured debts in 3 to 6 months, but not everyone qualifies. If you're delinquent on debt, declaring bankruptcy can stop the solicitations from debt collectors as well as lawsuits against the debtor. Your credit may take a hit, similar to debt settlements, but research shows credit scores can rebound within a year.
DIY debt settlement
You can pick up the telephone or contact your creditors to negotiate with them yourself. Like using a debt settlement company it's not guaranteed to succeed however it can help you save time and money.
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