Is Freedom Debt Relief a Scam? What You Need to Know

People drowning in debt often wonder about debt settlement programs. These programs promise to eliminate debt quickly. But you need to know if they’re legitimate before handing over your financial information.

Freedom Debt Relief claims to help resolve outstanding debts. But does it actually work? And are there better alternatives?

Freedom Debt Relief Is Legitimate

Freedom Debt Relief is not a scam. It’s one of the largest debt settlement agencies in the United States.

The company offers a free initial consultation. You provide them with your debt information. They explain how their service works.

Customer Reviews Are Positive

Freedom Debt Relief has strong online reviews:

• 4.5 out of 5 stars on Consumer Affairs
• 4.6 out of 5 stars on Trustpilot
• 4.92 out of 5 stars with the Better Business Bureau

Most consumers report that the company helped them settle debts. Many say they regained their financial footing.

Not Everyone Qualifies

Freedom Debt Relief handles credit card debts, medical debts, and private student loans. You need a minimum of $7,500 in debt to qualify.

You’ll also need to:

• Pay a 15% to 25% fee on your total debt
• Stay with the company for at least 24 months
• Make monthly payments toward your settlement
• Accept that creditors must agree to any negotiation

Working with a debt settlement agency will damage your credit score. You won’t make payments for at least 24 months. Your credit score will drop significantly during this time.

You likely won’t qualify for new credit if you need it. Consider whether you can handle this financial impact.

Looking for an alternative? Our partner Cambridge Credit Counseling offers debt management plans that protect your credit better.

The Fees Can Be Substantial

Freedom Debt Relief doesn’t charge upfront fees. You only pay after they settle your debts.

They provide an online dashboard showing your progress. You can track the status of each debt. You can see how much you’ve saved.

But you won’t know your total cost until everything is settled. You may owe 15% to 25% of your settled amount.

The Math May Disappoint You

Consider this example. Freedom Debt Relief reduces your debt by 40% through settlement. Then they charge a 20% fee for their services.

You’ve actually only saved 20% in the end.

Here’s a real number example:

• Original debt: $10,000
• Settled amount: $6,000 (saved $4,000)
• Freedom Debt Relief fee (20%): $2,000
• Actual savings: $2,000

Your actual savings may not justify the credit damage. You could negotiate your own settlement and save more money.

Better Alternatives Exist

You don’t have to pay for expensive debt settlement services. Freedom Debt Relief can’t guarantee specific settlement amounts. Their fees cut deeply into your savings.

Negotiating your own settlement can save you more money. You’ll avoid damaging your credit as severely. You’ll keep more cash in your pocket.

Debt Collectors Often Accept Less

Collection agencies buy debts for as little as 8% of the original amount. They’ll still profit if you pay 50% of your debt.

Debt buyers typically settle for 1% to 60% of the original debt. Original creditors usually settle for 20% to 70% of what you owe.

How to Negotiate Your Own Settlement

Communicating directly with creditors improves your settlement chances. Follow these proven strategies:

• Contact your creditor or collector directly
• Explain any financial hardship you’re facing
• Calculate what you can realistically afford
• Offer a specific lump sum amount
• Avoid payment plans when possible
• Get all agreements in writing

The more you communicate, the better your chances of reaching an agreement. Most creditors prefer getting something over nothing.

Consider a Debt Management Plan Instead

Debt management plans offer structured relief without the credit damage. Our partner Cambridge Credit Counseling can help you consolidate payments and reduce interest rates.

You make one monthly payment to the counseling agency. They distribute funds to your creditors. Your credit score suffers less damage than with settlement.

When Settlement Makes Sense

Debt settlement works best in specific situations. You should consider it when:

• You face a lawsuit from a debt collector
• Your debt has already gone to collections
• You have a lump sum available to offer
• Your credit is already significantly damaged
• Bankruptcy isn’t the right option for you

If you’ve been sued, you have leverage. Collection agencies want to avoid court costs. They’re often willing to settle quickly.

Protect Yourself During Negotiations

Always get settlement agreements in writing before paying anything. Verbal promises mean nothing if disputes arise later.

Your written agreement should include:

• The exact settlement amount
• The payment deadline
• Confirmation that the debt will be marked as settled
• A statement that no further collections will occur

Never give creditors direct access to your bank account. Pay by check or money order. Keep copies of all payment records.

Tax Implications of Debt Settlement

Forgiven debt counts as taxable income. If a creditor forgives $5,000 in debt, you may owe taxes on that amount.

You’ll receive a 1099-C form showing the cancelled debt. You must report this on your tax return. Plan for this additional tax liability when calculating your savings.

The Credit Score Impact

Settled debts appear on your credit report for seven years. They’re marked as “settled” rather than “paid in full.”

Your credit score will drop during settlement. The exact impact depends on your current score and credit history.

You can rebuild your credit after settlement. Start by:

• Making all future payments on time
• Keeping credit card balances low
• Not applying for new credit immediately
• Monitoring your credit reports for errors

Compare All Your Options

Before committing to any debt relief strategy, compare all available options:

• Self-negotiated settlement: Lowest cost, most control, requires confidence
• Debt management plans: Less credit damage, structured payments, requires steady income
• Debt settlement companies: Professional negotiation, high fees, significant credit damage
• Bankruptcy: Fresh start, legal protection, major credit impact

Each option suits different financial situations. Choose based on your debt amount, income stability, and long-term goals.