Can Freedom Debt Relief Save you Money?

By Kenneth Long on February 15, 2012

A large number of debtors routinely contact Freedom Debt Relief to help them escape the cycle of debt. They want to believe that the debt settlement company can help them negotiate drastic reductions in their debt balances. In reality, they save almost nothing while further damaging their credit.

The company claims that their fees are only about 7% of your enrolled debt each year. For a 4 year program, that works out to approximately 28% of your enrolled debt. On $20,000 in enrolled debt, you could pay as much as $5,600 in fees.

That may be acceptable to you if you believe they can settle for pennies on the dollar. Debt settlement companies used to make such untrue claims prior to federal regulators enforcing new limits on such false and deceptive trade practices.

One such requirement is making sure consumers have realistic expectations on what the firms can actually do. Freedom Debt Relief reveals this in the small print at the bottom of their website:


So using our previous example, you could expect to settle $20,000 in debt for about $10,000. After factoring in fees of $4,200 you would only save $5,600. There is one more dirty little secret that they do not have to tell you about.

The Internal Revenue Service considers forgiven debt to be a taxable form of income. If you are in the 28% tax bracket, you would have to pay $2,800 in federal income taxes on your forgiven debt. You would find out this dirty secret once you received Form 1099-C in January of the following year.

So after paying $10,000 in settlements, $4,200 in fees and $2,800 in taxes, your total savings would be $3,000, or only about 15% of your total debt. Now if they told you upfront that you could only reduce your debt by 15%, would you really jump into their program?

Plus, do not forget that these companies do nothing to prevent legal actions. You face potential judgments, liens and bank levies on your own. Also, remember that your balances continue to increase while you are on the plan, further eroding what you though were "savings."

A quick review of Freedom Debt Relief reveals that they are moderately upfront about the costs. They are not BBB Accredited but currently hold a C rating at the BBB. While this is a fairly negative rating for most businesses, it is actually above average for the frequently maligned debt settlement industry.

The facts are that while the company is a better player in the debt settlement industry, the industry itself is largely a farce. Debt settlement companies cannot negotiate better deals than you can. They do not have relationships with your creditors any more than you do. They simply send form letters on your behalf, which you could easily do yourself using sample templates.