Debt relief can refer to different debt solutions, including debt negotiation, debt settlement, debt consolidation, or even consumer credit counseling. Depending on the company offering you debt relief, it could involve one of the following benefits:
- Reducing the outstanding principal amount you owe to your creditors
- Lowering the interest rate on credit cards and other types of unsecured loans
- Extending the term of a loan to reduce monthly payments
How does debt relief work?
At Freedom Debt Relief’s debt relief program, also known as debt settlement or debt negotiation, reduces the outstanding principal amount you owe to your creditors. Our debt relief program does not decrease interest rates or change the length of a loan term.
During debt relief, the company negotiates directly with creditors on behalf of their clients to accept less than the full amount owed. This enables the creditor to get paid sooner and the client to resolve the debt in two to five years, which is much faster than by making minimum payments.
In many cases, our debt relief program could also enable someone to be debt-free sooner than they would be with a debt consolidation loan. Plus, the client saves money by not having to pay interest for all the years they would have been making minimum payments or repaying a debt consolidation loan. You can read more details on how a debt relief program works.
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Types of debt that qualify for debt relief
Debt relief typically works with unsecured debt. “Unsecured” means the debt isn’t tied to an asset, like a car or house. Freedom Debt Relief does not work with secured debt, which is a loan that is secured by a tangible asset.
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Debt relief fees
The fee amount can vary by client and is based on the amount of the debt the client enrolls in the program as well as the state in which they live. Across the debt relief industry, fees can range from 18 to 25 percent. Fees for the Freedom Debt Relief range from 15 to 25 percent.
There is no charge to enroll in the Freedom Debt Relief program, and we don’t charge any upfront fees (no reputable debt relief company will). Federal law requires that no debt relief company can charge fees until a debt has been negotiated and the client has agreed to the settlement.
How long does debt relief take?
Typically, you can complete a debt relief program in 24 to 48 months, though the length of time it takes to complete a debt relief program can vary by debt relief company. Freedom Debt Relief can customize your debt relief program length based on your goals and budget, although some companies only offer set program lengths to choose from.
If you are considering debt relief through a debt settlement program, compare its cost and time involved against other options you are considering.
Can I negotiate debt relief on my own?
You certainly can pick up the phone, call your creditors, and try to negotiate settlements with them yourself. Sometimes, creditors may work out payment plans or debt reductions if you pay in cash. Others may offer payment plans if you have experienced a true hardship, such as a job loss. Keep in mind that you might need to be prepared to draw up paperwork that states the terms, and get their signature agreeing to them.
Unfortunately, depending on your life right now, you may not be in a good position to negotiate on your own. Calling all your creditors and following up with the necessary paperwork can be time-consuming, and their business hours can be limited.
Find a legitimate debt relief company
If you decide debt relief could be a good option for you, be sure to do your homework online. When doing your research, beware of red flags that could alert you to signs that a company does not have your best interests at heart.
Debt relief credit impact
Depending on your credit health, enrolling in a debt relief program that involves debt settlement could hurt your credit in the short term. That’s because a debt settlement program involves stopping payments on accounts while settlements are negotiated with creditors. Missed payments are a strike against you when credit monitoring agencies calculate your credit score.
How much the program impacts credit will vary from person to person, but typically, the impact of a debt settlement program is much less than the long-term effect of bankruptcy. Remember, too, that most people who enter debt settlement have had financial hardship and may already may have poor credit profiles and scores. Once you begin paying your settled debts and maintain good credit behavior, your credit profile should improve.
The impact of a debt settlement program is much less than the long-term effect of bankruptcy.
But if protecting your credit score is more important to you than getting out of debt, debt relief may not be the right solution for you.
The Freedom Debt Relief program is designed to address debt and help people get out of debt so they can take control over their financial lives. To the end, we also help clients address the underlying issues of their debt hardship and help them learn better money habits. As a result, clients can develop the financial skills that could put them on better financial footing going forward.
Does debt relief get rid of all my debt?
No. The Freedom Debt Relief program can only help with unsecured debts—like credit card debt, personal loan debt, medical debt, some private student loan debt, and some business debt— that you enroll into the Freedom Debt Relief program. It can’t help with federal student loans, a mortgage, auto loans, or any other type of collateralized debt you may have. The Freedom Debt Relief program won’t resolve any debt you take on after you have enrolled in the program, either.
If you commit to the Freedom Debt Relief program and complete it successfully, all the debts you enrolled in the program will be behind you.
Will my creditors take legal action if I choose debt relief?
Since it can be months between the time when you stop paying creditors and the time when While Freedom Debt Relief begins negotiating with them, creditors may call you. Creditors may also sell your debts to a debt collector, and the debt collectors may call you. Some aggressive creditors even take legal action. These issues typically are only a problem in the early months of the program, however.
At Freedom Debt Relief, we encourage clients to direct all creditor communications to us—it’s part of our service to take care of any communications with creditors and debt collectors. We also offer an optional service that helps clients with any legal issues that may arise during their time in the program. It can be unsettling to get calls and legal notices, so we are committed to working with clients and supporting them through every step of the program to ensure their success and satisfaction.
Does debt relief have any tax ramifications?
Forgiven debt can be considered income by the IRS, so it’s possible you could owe taxes on the amount you saved on each debt we negotiate for you. However, if you are insolvent (have more liabilities than assets) at the time you settle debts with your creditors, the requirement to pay tax on the forgiven debt may be waived. IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness may exempt you from this tax, but we recommend you consult with a tax expert for more information on this.
Get all your debt relief questions answered
Figuring out the right debt solution isn’t easy. That’s why debt consultants at reputable debt relief companies like FDR will take time to understand your individual needs and work with you to determine the best debt relief option for you, which might include options you haven’t even considered on your own. So if you have more questions, why not give us a call?
Our friendly Certified Debt Consultants are available at 800-910-0065 and are happy to answer all your questions, no strings attached. They have the expertise to help you fully understand your options and make the right choice—even if it ends up that debt relief isn’t the right fit for you.
Whatever option suits you, you’re doing the right thing by seeking out a solution for your debt. Your debt won’t go away on its own, but you can take steps to get back in control of your financial life.