If you have large amounts of debt, then debt settlement services like Freedom Debt Relief could be an enticing choice for you. But you may be wondering – does signing up for such a plan as Freedom Debt Relief harm your credit? Here are the things that you should know.
How Debt Settlement Works
Debt settlement companies such as Freedom Debt Relief work to pay your creditors for a lower amount than the full balance that you owe. Here’s a quick overview of how debt settlement works:Here’s a quick overview of how debt settlement works:
1. You no longer pay your creditors and instead make deposits to a secured account. This way, one can save enough of an amount to make settlement offers.
2. Through this method, the debt settlement company, including Freedom Debt Relief, negotiates to pay creditors with the full amount of 40 to 60% of your initial balance, though it may not always be the case.
3. When negotiations are successful, the creditor consents to waive the remaining amount or “settle” the balance once he/she receives the amount as offered for settlement. The process, in general, requires 2 to 4 years to accomplish although some may even last longer depending on the intensity of the fighting or conflict.
The Potential Credit Impacts
When comparing debt relief options, one thing that is often considered is the effect on credit. Here are the most likely credit consequences of working with Freedom Debt Relief or other debt settlement firms:Here are the most likely credit consequences of working with Freedom Debt Relief or other debt settlement firms:
It will be most probable that your accounts will be closed by your creditors with an unpaid status after you fail to pay your bills. This can negatively affect your credit scores depending on the extent of the downgrade.
Debts are not legally said to be in settlement until the discussions are complete, and the creditors have ratified the offer for the settlement amount. Thus, your credit reports will continue to reflect accounts as being past due or in collections even during the settlement period, which is a minimum of 2 years.
Paying off debts for less than their face value usually results in other negative entries in your credit report such as “settled for less than owed” entries. It also leads to another loss of credit scores.
In most cases, the credit effect of debt settlement is profound and persists for an extended period. Moreover, a debt settlement such as Freedom remains in your credit history for 7 years starting from the time accounts become delinquent. This makes it very challenging and sometimes very time consuming to repair credit.
Other Potential Downsides
In addition to credit damage, debt settlement programs have other drawbacks to consider like:In addition to credit damage, debt settlement programs have other drawbacks to consider like:
Upfront and ongoing fees – While Freedom and other debt settlement firms may not charge upfront fees, they do take 15-25% of the enrolled debt. Such fees reduce the amount of cash you can use for settlement.
Creditor lawsuits and collection calls – For some creditors, when you fail to make payments, they sue or sell your account to a collection agency. Another characteristic of freedom is that it provides assistance regarding this, however, it can be tense.
Tax implications to the forgiven debt – The forgiven debt may be considered as income by the IRS. They do not provide any tax consultation or help for that matter to the viewers of the show.
Alternatives to Debt Settlement
So instead the key question becomes – is debt settlement your only or your best choice? Some alternatives to explore first include:Some alternatives to explore first include:
Credit counseling – Non-profit credit counseling agencies help you to create affordable debt management plans (DMPs) with lower interest rates. This also makes it possible to discharge debt in full without adversely affecting the credit list.
Balance transfer credit cards – Transferring balances to a card with introductory 0% interest rates allows you to pay off balances without accruing interest. This minimizes total costs.
Debt consolidation – Debt consolidation refers to the rolling of several high interest debts into a single low interest debt. It does not affect your credit while making payments easier and more convenient each month.
On the positive side, these choices help Mr good standing on credit reports when repaying the debt. The flip side is that the potential tradeoff is making higher monthly payments than under debt settlement. However, credit benefits are still more valuable for many consumers than short-term savings on payments.
Is Freedom Debt Relief the Right Company for You?
Freedom Debt Relief is one of the biggest debt settlement companies you will find with plenty of experience in helping people save money on debts owed. However, as has been highlighted in the details above, it nearly always means an adverse effect on credit. It is not a decision to be made hastily because it has long-term impacts, so consider all of the available options. Your credit and overall financial health are often better served by solutions that facilitate the repayment of the debts without the use of settlements.
Call now for expert credit repair services: (888) 803-7889
Read More:
Is freedom credit repair legit?
Has anyone ever sued Freedom Debt Relief?
Can I fix my credit by paying off debt?
