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When people are carrying a bigger debt burden than they can handle, they might turn to a debt resolution company for help. Freedom Debt Relief, founded in 2002, is one of the biggest debt negotiators in the country, but does that mean it’s a worthwhile service to use?
Freedom Debt Relief – and companies like it – negotiate with your creditors on your behalf to settle your debt for a reduced amount. The company says it resolves an average of 43,891 accounts a month for a total of $10 billion in resolved debts so far.
Although that might sound great, there are risks to settling your debt with a creditor – whether on your own or through a company. That’s why it’s important to know the risks beforehand and, if you decide to use a negotiation company, choose a reputable service.
How Freedom Debt Relief Works
When a person seeks out the services of Freedom Debt Relief, they are first given a free debt evaluation to let them know if they’re a good candidate for relief. If it’s a “yes,” the company will help their client find an acceptable payment to an FDIC-insured dedicated account that lets them get rid of their debt faster.
By negotiating with the companies a person owes money to, Freedom Debt Relief can potentially knock off a portion of what is owed after collecting fees, which range from 15 to 25 percent of the enrolled debt. These fees aren’t collected until the company reaches a settlement agreement for the client, the client signs off on the agreement, and at least one payment is made toward the agreement.
Clients will make a monthly deposit into a secured, FDIC-insured bank account and can check on their progress by viewing the client dashboard Freedom Debt Relief offers. At all times, clients keep control of their money for their peace of mind. As that money builds up, it gives the company leverage to attempt to make a cash settlement with the companies that are owed money. When a settlement is reached with a creditor, Freedom Debt Relief will contact a client for their authorization.
This service is an option for people struggling with unsecured debt, like credit cards and medical debt. However, clients need to realize that saving money through this method comes with drawbacks. It will damage their credit score if they stop making payments on their bills to start funding the account through Freedom Debt Relief. Also, if a debt settlement is reached, it will likely negatively impact their credit score. Those negative items can remain on a credit report for up to seven years.
The company will only work with clients who have a real financial hardship and who have at least $7,500 in unsecured debt.
The Downsides of Using Freedom Debt Relief
In 2017, the Consumer Financial Protection Bureau sued Freedom Debt Relief, alleging the company deceived consumers over:
- Creditors’ willingness to negotiate
- The extent of the company’s negotiation services
- How it charges fees
- Consumers’ rights to their funds
The company denied the CFPB’s charges following the bureau’s announcement. In any case, it’s important for consumers to do their due diligence and know exactly what to expect before choosing a debt settlement company to work with.
Furthermore, a severe downside to using this service is that the client’s credit score will take a hit. That hit could potentially last for years, but the company is straightforward about it. Another drawback is clients might have to pay taxes on the part of the debt that is forgiven.
Why Consumers Might Choose to Work With Freedom Debt Relief
One of the biggest reasons why people truly struggling with debt might opt to go with Freedom Debt Relief is because it offers transparency and years of experience. More than half a million clients have chosen the company for help with
It also offers a flexible program that can be customized. Clients get to choose how much and how often they make deposits. In the end, their monthly deposits could be even less than what they were making in minimum credit card payments.
Freedom Debt Relief might be a viable solution for people who are really struggling with paying off their debts. It may affect a person’s credit score for a while, but they may still sleep easier not having that crushing load of debt hanging over their head.
Before signing up, remember:
- It’s only for those who are really struggling.
- You have to have $7,500 or more in debt.
- Expect a hit on your credit score.
- Realize you may have to pay taxes on the forgiven portion of the debt.
Author: Shannon Serpette