Freedom Debt Relief can be a good idea for those with at least $7,500 in unsecured debt, but it is not without risks. The company charges fees of 15% to 25% of enrolled debt, according to CNBC, and settling can drop your credit score by over 100 points, according to Debt.org. Alternatives include DIY settlement, credit counseling, and debt consolidation loans. Debt relief is a process where a company negotiates with creditors to reduce the total amount you owe, typically in exchange for a lump-sum payment.
What Is Freedom Debt Relief?
Freedom Debt Relief is a for-profit debt settlement company based in San Mateo, California, that was founded in 2002. Since its inception, the company claims to have resolved over $20 billion in consumer debt and served over 1 million clients, according to the company. The firm specializes in negotiating with creditors to reduce the total debt amount in exchange for lump-sum settlement payments.
Debt relief companies like Freedom Debt Relief work exclusively with unsecured debt, including credit card bills, personal loans, and private student loans. Mortgages and auto loans are secured debts and do not qualify for debt settlement because they are backed by collateral. To begin the program, clients stop making payments to creditors and instead deposit money into a dedicated savings account, which Freedom Debt Relief then uses to negotiate settlements once sufficient funds accumulate.
What Are the Fees and Minimum Debt Requirements?
Freedom Debt Relief’s fees range from 15% to 25% of the total debt enrolled. Most for-profit debt relief companies charge clients between 14% and 25% of total enrolled debt, according to CNBC. The program includes a one-time fee of $9.95 to set up the dedicated savings account and a monthly fee of $9.95 for account servicing. Opening charges for the savings account averaged between $8 and $10, with monthly maintenance fees of $9 to $10, per a CNBC Select analysis.
Key eligibility and cost details are as follows:
- Minimum debt: Eligibility for Freedom Debt Relief requires at least $7,500 in unsecured debt. Most debt relief companies require a minimum of $7,500 in unsecured debt to enroll, reported CNBC.
- Fee structure: Reputable debt relief companies assess fees after the debt is settled, as noted by CNBC. Freedom Debt Relief charges its percentage fee on each debt only after a successful settlement.
- Account fees: In addition to the percentage fee, you pay a one-time setup fee and a monthly maintenance fee for the dedicated savings account.
How Long Does the Program Take and What Results Can You Expect?
According to Freedom Debt Relief, the program typically spans 24 to 48 months, with most clients seeing their first settlement within four to six months after enrollment. The company generally aims to settle all enrolled debts within 36 months. During this period, you deposit funds into the dedicated account, and Freedom Debt Relief negotiates with each creditor one at a time.
In terms of debt reduction, Freedom Debt Relief can reduce your total debt by 30% to 50% before fees, according to the company. This means if you owe $20,000, your settlements might total $10,000 to $14,000, but you then pay the company’s 15% to 25% fee on top. After completing a debt relief program, consumers can still get a mortgage but may face a higher interest rate and be required to make a larger down payment, according to CNBC. Results vary based on creditor cooperation, the size of your savings account, and the specific debts enrolled.
What Are the Risks and Downsides?
- Credit score impact: Settling debt could cause a credit score decline of more than 100 points, according to Debt.org. Payment history makes up 35% of a credit score, with negative marks remaining on your credit report for up to seven years, as reported by CNBC. Using a debt relief company could drop your FICO score more than 100 points, per the Consumer Financial Protection Bureau (CFPB).
- Tax implications: Under U.S. tax law, almost any debt over $600 that is forgiven is considered taxable income, according to CNBC. You may receive a Form 1099-C from the creditor and must report the forgiven amount as income on your tax return.
- Unsettled debts: According to the CFPB, debt relief companies are often unable to settle all debts, meaning some creditors may sue you for full repayment. The CFPB also recommends against doing business with companies that tell clients to cut all ties with creditors, as this can lead to lawsuits and further credit damage.
- Cost and time: The program takes 24 to 48 months, during which you will not be making regular payments to creditors, accruing late fees, and risking collection actions.
How Does Freedom Debt Relief Compare to Alternative Companies?
The table below compares Freedom Debt Relief to three top competitors based on fees, minimum debt, availability, and business details.
| Company | Minimum Debt | Fees (% of enrolled debt) | Availability | BBB Rating | Years in Business | Program Length |
|———|————-|————————–|————–|————|——————|—————-|
| Freedom Debt Relief | $7,500 | 15% to 25% | Nationwide | A+ | Since 2002 | 24 to 48 months |
| New Era Debt Solutions | $10,000 | 14% to 23% | Nationwide except Iowa, Maine, and Oregon | A+ | Data not specified | Average 28 months |
| Accredited Debt Relief | $10,000 | 25% | Nationwide | Data not specified | Since 2011 | As little as 24 months |
| National Debt Relief | $7,500 | 15% to 25% | 47 states and District of Columbia | Data not specified | Since 2009 | Data not specified |
New Era Debt Solutions has an A+ rating from the Better Business Bureau, as reported by CNBC. Its minimum debt is $10,000, with fees of 14% to 23% of enrolled debt. New Era is available nationwide except in Iowa, Maine, and Oregon, and its clients average 28 months to complete the program, according to CNBC.
Accredited Debt Relief claims clients can be debt-free in as little as 24 months, charges 25% of enrolled debt, and has been in business since 2011. It requires at least $10,000 of debt, including credit card, personal loan, and medical debt. National Debt Relief has a minimum debt of $7,500, operates in 47 states and the District of Columbia, and charges 15% to 25% of enrolled debt, having been in business since 2009, per CNBC.
What Are the Alternatives to a Debt Relief Company?
Several alternatives exist to using a for-profit debt settlement company, each with distinct features and requirements:
- DIY debt settlement: You can negotiate directly with your creditors without a third-party company. This approach avoids fees entirely, but you still risk credit score damage and potential lawsuits. Success depends on your negotiation skills and available lump-sum funds.
- Debt consolidation loans: Personal loans can pay off multiple debts, leaving you with a single monthly payment. Upstart offers personal loans with APR 6.20%-35.99%, loan amounts from $1,000 to $75,000, terms of 36 and 60 months, and requires a credit score of at least 300, according to CNBC. Avant offers loans with APR 9.95%-35.99%, amounts from $2,000 to $35,000, terms of 24 to 60 months, and accepts poor to fair credit, per CNBC. Note that consolidation does not reduce the principal amount owed.
- Credit counseling: Non-profit credit counselors can help lower balances by extending the repayment period and negotiating lower interest rates and fees, as reported by CNBC.
- Debt management plans: Through a credit counseling agency, you make a single monthly payment that is distributed to creditors. These plans typically last three to five years and can reduce interest rates but may impact your credit initially.
How to Spot a Debt Relief Scam and Protect Yourself
- Unsolicited contact: Legitimate companies do not cold-call, text, or email you offering debt relief services. Scammers often reach out via phone or email.
- Upfront fees: Under the Telemarketing Sales Rule, debt relief companies cannot charge fees before they settle or reduce your debt. Any company demanding upfront payment is likely a scam.
- Unrealistic promises: Be wary of companies that guarantee to reduce your debt by a specific percentage or promise to remove negative items from your credit report quickly. No legitimate company can make such guarantees.
- Advising to cut ties with creditors: Scammers often tell you to stop communicating with creditors and to ignore collection calls. This can lead to lawsuits and further credit damage. The CFPB specifically warns against this practice. If you encounter any of these red flags, report the company to the Federal Trade Commission (FTC) and the CFPB.
Conclusion: Is Freedom Debt Relief a Good Idea for You?
Freedom Debt Relief can be a viable option if you have at least $7,500 in unsecured debt and are comfortable with the risks, including a significant credit score drop and potential tax liability on forgiven amounts. On Trustpilot, Freedom Debt Relief has over 46,000 reviews and a rating of 4.6 out of 5.0, according to Trustpilot. The Better Business Bureau gives Freedom Debt Relief an A+ rating, according to the BBB.
However, these positive reviews do not negate the credit damage or the possibility that some debts may not be settled. If you cannot afford monthly payments on your current debts and have a lump-sum fund available for settlements, the program may help you avoid bankruptcy. Before enrolling, compare costs with competitors like New Era Debt Solutions and National Debt Relief.
Also, explore alternatives such as nonprofit credit counseling through reputable agencies like the Financial Counseling Association of America or the National Foundation for Credit Counseling, or consider a debt consolidation loan from lenders like Upstart or Avant. Consult with a credit counselor or financial advisor to determine which path aligns best with your financial situation. Always verify a company’s credentials before signing up.
FAQ
Q: What is the minimum debt required for Freedom Debt Relief?
A: Freedom Debt Relief requires at least $7,500 in unsecured debt to enroll. This is standard for most debt relief companies.
Q: Does Freedom Debt Relief charge upfront fees?
A: No, reputable companies like Freedom Debt Relief charge fees only after a debt is settled. There is a one-time savings account setup fee of $9.95 and a monthly fee of $9.95.
Q: How much can Freedom Debt Relief reduce my debt?
A: Freedom Debt Relief typically reduces enrolled debt by 30% to 50% before fees, but results vary. You also pay fees of 15-25% of enrolled debt.
Q: Will using Freedom Debt Relief hurt my credit score?
A: Yes, settling debt can cause your credit score to drop by more than 100 points. Negative marks can remain on your report for up to seven years.
