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 reduce the outstanding principal amount you owe to your creditors, lower the interest rate on credit cards and other loans, or extend the term of a loan to reduce monthly payments.
One of the leading providers of debt relief (i.e., debt negotiation), Freedom Debt Relief, substantially lowers the debt owed by its clients by negotiating with creditors; but how does Freedom Debt Relief work? The following is an overview of the debt settlement process in general, with details about Freedom’s method.
How does debt relief work?
Debt relief programs, also known as debt settlement or debt negotiation, reduce the outstanding principal amount you owe to your creditors. These programs do not decrease interest rates or change the length of a loan term, as do some other approaches.
A debt relief program has expert, experienced negotiators who know how to deal with creditors.
A debt relief 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 often resolve the debt in two to five years, which is usually much faster than by resolving debt by making minimum payments.
In many cases, a debt relief program could even enable someone to resolve their debts sooner than they would with a debt consolidation loan. In addition, the client saves money by not having to pay interest during the time they would have been repaying a debt consolidation loan.
Types of debt that qualify for debt relief
Debt relief typically works with unsecured debt, which is debt that 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. Here is a side by side comparison of the two kinds of debt:
· Credit card debt
· Personal loan debt
· Medical debt
· Some private student loan debt
· Some types of business debt
· Vehicle loan debt
· Mortgage debt
· Federal student loan debt
Debt relief fees
There are fees associated with a debt settlement program. The fee amount can vary by client, and is based on the amount of enrolled debt, and the state in which they live. Fees can range from 18 to 25 percent throughout the debt relief industry. At Freedom Debt Relief, the fees range from 15 to 25 percent.
There is no charge to enroll in the Freedom Debt Relief program, and there are no upfront fees. Federal law requires that no fees are charged 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 company and by client. 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.
Can I negotiate debt relief on my own?
How does Freedom Debt Relief work compared to doing it yourself? You certainly can pick up the phone, call your creditors, and work to negotiate settlements with them yourself. Creditors may work out payment plans or debt reductions if you pay in cash, or may offer payment plans if you have experienced a true hardship, such as a job loss. Be prepared to get the terms in writing, and their signature agreeing to them.
Depending on your life right now, you may or may not be in a good position to handle dealing with your creditors on your own. Calling all your creditors and following up with the necessary paperwork can be time-consuming, and does require a willingness to negotiate with them.
Find a legitimate debt relief company
If you decide debt relief is the right good option for you, be sure to do your homework when searching for a debt relief company. Beware of red flags that could alert you to signs that a company does not have your best interests at heart. Such warning signs may include (but are not limited to):
- Upfront fees (before your debt is settled)
- Guarantees to eliminate all your debts
- Claiming they can stop debt collection calls or lawsuits
Be careful with any company that promises easy, pain-free solutions – dealing with debt takes commitment.
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 the impact of a debt settlement program is typically much less than the long-term effect of bankruptcy. Most people who enter debt settlement have had financial hardship and may already have poor credit profiles and scores. Once you begin paying your settled debts and maintain good credit behavior, your credit profile should improve.
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 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?
Usually, the answer is no. The Freedom Debt Relief program, like others, 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 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 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?
When you work through the process of resolving your debt, your accounts enrolled in the Freedom Debt program will go past due. This can result in creditors using the legal process to collect on the debt. Freedom has experience with these situations and can help you handle these types of collection strategies.
As part of the program, Freedom engaged a network of attorneys that specialize in resolving debt litigation cases. If a creditor takes legal action, the company would work with their legal partners to determine the best course of action and may engage an attorney in that network to negotiate a settlement with the opposing law firm or represent you in court, if needed.
Does debt relief have any tax ramifications?
Forgiven debt may 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, the requirement to pay tax on the forgiven debt may be waived. Filing IRS Form 982 may exempt you from this tax, but we recommend you consult with a tax expert for more details.
Get all your debt relief questions answered
If you’re struggling with debt, it might be time to take action—but figuring out the right debt solution isn’t easy. Debt consultants at reputable debt relief companies will take time to understand your individual needs and help you determine the best debt relief option for you. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future. Find out if you qualify for our debt relief program right now.