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Freedom Debt Relief Review 2023
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Freedom Debt Relief Review 2023
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Last updated Dec 20th, 2022 at 12:05PM PST
Edited by Kathy Hinson Lead Assigning Editor Personal finance, 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 with The Oregonian in Portland in positions such as copy desk chief and team director of design and editing. Her previous experience included news and copy editing for various Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor's in journalism and mass communications from The University of Iowa.
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Freedom Debt Relief, a company that provides debt settlement services is a company that negotiates with creditors in order to lower the amount of unsecure debt you are obligated to.
is one of several debt relief options consumers have. It is important to think about whether you're eligible to other debt relief options and then compare fees. Also, consider what Chapter 7 bankruptcy might wipe out more of your debts, and more quickly.
The following article sums it up:
How Freedom Debt Relief Works
How do I qualify?
Freedom assists customers with debts from medical bills, credit cards as well as personal loans, students' private loans and other types of unsecured debt. In general, you need to be in possession of a minimum total debt balance of $7,500 to be eligible, however certain states have laws that require higher requirements for minimums.
Similar to other debt relief businesses, Freedom cannot help clients with debt that involves collateral, like the mortgage or car loan. It also cannot address the debt arising from federal student loans.
A typical customer will have the average amount of $30,000 worth of non-secured debt spread across eight or nine credit accounts once they have enrolled with Freedom according to Sean Fox, the company's co-president. The amount of debt that is unsecured could be up to $100,000 or more, with some clients with 20 or more credit cards, Fox adds.
The debt settlement process
Go online or call to do an assessment of your debts and your eligibility for the program with a Freedom representative. You'll then have a program summary call that details the settlement program and you'll be provided with agreements and documents to sign. This is followed by an onboarding phone call.
Once you enroll debts in the program, you cease making payments on enrolled accounts. Instead, you open a dedicated account to hold the payments of creditors. You'll control and own the account and make monthly payments into it. Freedom works with you decide on the amount to be monthly deposited into your account. The amount will be determined by your financial capacity and the amount of total debt enrolled, as per the company.
If you do not pay a creditor, you become in default on the account. You accrue late fees and interest charges and your credit score decreases. The accounts that are in default remain on your credit reports for seven years.
As the money accumulates in the account that is dedicated, Freedom begins negotiating with individual creditors on your behalf in an effort to negotiate with them for less than the amount you are owed. The idea is that , after many months of not paying, the creditor will be motivated to take the lesser amount rather than losing nothing.
If a creditor accepts the lesser payoff amount, you pay the creditor, either a lump sum or in installments, from your dedicated account. Then, you pay the fee towards Freedom Debt Relief for its service.
Cost
By legislation, Freedom cannot charge upfront fees. Instead, it collects fees whenever the settlement is reached with a creditor after you have approved it and paid at least one payment on it.
The cost ranges from 15% to 25%. It's determined by the size of the debt that is enrolled. It can vary based on the state's regulations. If a customer settles a $5,000 credit card balance with a balance of $3,000 for instance, will pay between $1,250 and $750 to Freedom for its services.
There's also a one-time cost of $9.95 to establish the account with a special purpose, and an annual fee of $9.95 which covers account maintenance, Fox says. These fees are charged by the host company of the account, but not through Freedom.
Time frame
Freedom claims that most customers will receive their first payment within three months, however it can take longer depending on the amount you pay each month, the number of accounts that are enrolled in the program, and the amount due on each account. Freedom says clients who commit to on-time monthly payments into their dedicated accounts will pay off all outstanding debts within two to four years on average.
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Freedom Debt Relief at a glance
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What should you be aware of regarding Freedom Debt Relief
Responsive to customer complaints
Freedom has an A+ rating on the time of writing . It has received over 350 customer complaints in the last three years, including complaints about issues with their service as well as issues with billing and collection. Notably, the company is able to provide a 100 percent response rate to customer complaints through the BBB.
Lawsuit
The company was brought before the Consumer Financial Protection Bureau, which alleged the company charged customers without paying their debts according to the terms they it was promised, forced them to negotiate their own settlements and misled customers about its charges.
In July 2019, Freedom settled the CFPB lawsuit , agreeing to pay $20 million in compensation to the affected consumers as well as a $5 million civil penalty (zero) Consumer Financial Protection Bureau . . Accessed Nov 12 20th, 2020.
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Dangers associated with debt settlement
The drawbacks and risks associated with debt settlement include:
It can affect your credit score
As you're required to stop paying your outstanding debts in order to be enrolled into a debt settlement program the accounts will be marked as delinquent in your credit report. Your credit score will suffer a major hit, potentially affecting future credit applications, or even work. Accounts that are delinquent for seven years, or more, are also considered delinquent, as are loans that charge off accounts.
The odds of success aren't always certain.
Certain creditors might sell your debt to a third-party collection agency or debt buyers. Freedom claims it works with the third-party and may coach some clients to settle directly with creditors. However, the results may differ.
Fees and interest accumulate
In the time you're in a debt settlement program and you're in debt settlement, you'll be charged additional fees for late payments and interest in your loan. If you don't remain in the program for long enough to complete it, or if Freedom fails to negotiate the settlement, you'll end up left with the debt that is higher.
You might still hear from debt collectors
Because you cease paying your account, you may experience aggressive collection efforts or legal action from creditors. Freedom claims it will encourage clients to notify creditors that they're working with the settlement company and to send documents to Freedom through their own online dashboard.
Forgiven debt may be taxed
Because the IRS accepts forgiven debt as taxable income It's possible that you'll have to pay taxes on the amount of debt you didn't have to pay once you settled. Some creditors will provide an Annulment of Debt form . A possible exception is if you're insolvent (have more assets than liabilities) at the time you settle your debts with your creditors.
Speaking with an attorney or tax professional for further guidance is recommended.
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Freedom Debt Relief vs. other alternatives
Before settling on a debt settlement option consider other options, including the option of paying off debt and other alternatives:
Debt management plan
This could be a good alternative for those with a steady income to repay credit card debts in three to five years. You'll pay a nonprofit credit counseling company to reduce your debt into one monthly installment with a lower rate of interest. But you won't have access to new credit or the ability to make use of your credit cards until the time of payoff.
Consolidation of debt
This option lets you consolidate multiple debts into a new debt, usually via the charge to balance or a . The new debt will have an interest rate that is lower than the old ones which could help you pay off your debt faster. However, it is often a requirement for good or excellent credit scores for approval or to secure the best terms.
Bankruptcy
The bankruptcy process can help you pay off your debt under protection from a federal court. will typically erase most unsecure debts within three to six months. However, not everyone qualifies. If you're in default on debt, filing bankruptcy will put off solicitations from debt collectors as well as lawsuits filed against the debtor. Your credit may be affected, similar to debt settlements however research suggests that credit scores are likely to improve within one year.
DIY debt settlement
You could pick up the phone or contact your creditors to negotiate with them yourself. Like using a debt settlement company it's not guaranteed to succeed however, it could help you save time and money.
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