If you are struggling with debt, you aren’t alone. About 122 million Americans carry credit card debt—and 14 percent of consumers have credit card balances above $10,000.
You’re also not alone if you are looking at ways to help resolve your debt. Understanding your available options is the first step to becoming debt-free and regaining control of your financial life. If you are thinking about a debt relief program, you probably have many questions. Here, we’ll look at some of the most common—and important—questions that come up in evaluating what debt relief is, and if it could help you.
What is debt relief?
“Debt relief” is a broad term. It can mean different things in different contexts. 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 payments
At Freedom Debt Relief, our debt relief program delivers the first benefit: reducing 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.
The way our program reduces the principle amount owed is through debt settlement, which is also known as debt negotiation or debt resolution.
During the FDR debt relief process, we negotiate directly with creditors on behalf of our clients. We get the creditor to accept less than the full amount owed, which 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 the Freedom Debt Relief program works.
What types of debt qualify for the Freedom Debt Relief program?
At Freedom Debt Relief, we work 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.
Can I negotiate debt 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. If you are already working a second job, for example, you probably won’t have the time required to call all your creditors and follow up with the necessary paperwork. On top of that, if you are also struggling with a financial hardship like a medical event, divorce, job loss, natural disaster, or loss of a loved one, it may be tough for you to actually pay whatever settlement you eventually get a creditor to agree to. And if creditors lack confidence that you’ll be able to repay, they may be less likely to negotiate a settlement with you in the first place.
Will I be charged interest and late fees in a debt relief program?
A debt relief program like Freedom Debt Relief takes on the burden of negotiating with your creditors for you, and since it requires you to save up funds in a Dedicated Account for a few months, creditors are more likely to feel confident that they will receive payment and thus more willing to negotiate a settlement.
Before FDR can begin negotiating with your creditors to get them to settle for less, you will deposit funds over several months into a Dedicated Account (which your fully control). During this time, creditors will continue to assess interest and fees on the accounts we’re negotiating for you. But don’t worry: these additional charges were accounted for at the start of your program, and are incorporated into the settlement agreements. You won’t need to pay extra beyond your monthly deposits.
How does debt relief compare to other debt solutions?
Debt relief programs such as the Freedom Debt Relief program may be faster and more affordable than other options, but they are not right for everyone.
These programs are best suited for people with serious unsecured debt—usually at least $7,500 or more—and who are experiencing a hardship that makes it difficult to stay current on bills. Debt relief programs require a commitment to getting out of debt, and learning to budget and live within your means. If you are considering debt relief, it is a good idea to compare debt relief to other debt solutions.
As the largest debt settlement provider in the country, the Freedom Debt Relief program has helped tens of thousands of people significantly reduce their debt. In fact, Freedom Debt Relief has saved more than $3.5 billion for consumers since the company was founded in 2002.
How much does debt relief cost, and how long does it take?
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.
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.
As far as the length of time it takes to complete a debt relief program, that can vary by debt relief company as well. 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.
If you are seriously considering debt relief through a debt settlement program, it can be helpful to compare its cost and time involved against other options you may be considering. It may end up being a faster, more affordable option.
Debt relief vs. making minimum payments
If you want to pay off your credit card debt through making minimum payments, realize that you are paying the principal amount owed plus the interest amount each month. And because interest compounds monthly and adds up over time, you’ll end up paying more (often much more) than the original cost of the item you bought with your credit card way back when.
Let’s say that three months ago you charged $3,000 worth of airline tickets on a credit card that has a 17 percent interest rate. Since then, you have made a minimum payment of $90 (3 percent of the balance) each month, which you plan on continuing until the original $3,000 is paid off. If that’s your plan, it will take you 46 months (almost 4 years) to pay off that original credit card charge, and you will end up paying nearly $1,100 more in interest. So your airlines tickets actually cost you $4,410! And that’s assuming you didn’t keep using that credit card and increasing the monthly bill amount each month.
Debt relief vs. debt consolidation loan
If you are considering a debt consolidation loan as a way to pay off your creditors, it is important to evaluate the loan’s requirements, terms, and interest rate. It’s essential to get an interest rate on your loan that is lower than the average interest rates on the credit cards you want to pay off, otherwise it is not going to end up saving you much money in interest. The lower the rate, the better.
If you have good enough credit, you may have no problem qualifying for a rate that is significantly lower than your credit card interest rates. Your monthly loan repayments may be high, though, unless you want to carry the loan for a longer term. But if you opt for a longer loan term with lower payments, you will end up paying more interest over time. That means that moving your debt from high interest credit card debt to lower interest loan debt won’t save you as much as it could if you had a shorter loan term/higher monthly payments.
How does debt relief affect credit?
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.
How do I look for a legitimate debt relief company?
If you decide debt relief could be a good option for you, be sure to do your homework online and with any friends or family you trust who may have insight to share. Enrolling in a debt relief program is a serious financial decision, so taking the time to choose the right debt relief company is essential. 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.
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 800-230-1553 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.