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February 22nd, 2022
January 28th, 2022
By Ashley Lee
June 18th, 2021
Guest Post by Jeremiah Heck The short answer: yes, you can still settle your debt even if a creditor sues you. The longer answer: the settlement is often less than the amount owed, and in some circumstances, you might have grounds to sue the creditor (or take other legal action). Read on to learn about your consumer rights in a debt collection lawsuit, debt settlement, and potential legal defenses when you find yourself facing unpaid debts. Before You Settle, Verify According to Forbes, 70 million American consumers have credit issues ranging from collection agencies to lawsuits. Debt settlement — negotiating with creditors to settle for an amount less than you owe — is an effective way to avoid litigation. Before you pay anything, however, verify that the debt is accurate. Don’t assume that the credit card company, collections agency, or law firm has a valid complaint. Creditors and collections agencies have been known to sue the wrong person for a default payment. Get It in Writing The Fair Debt Collection Practices Act (FDCPA) gives you the right to ask a company to verify a debt. Mail a certified letter (return receipt requested) asking for verification in writing. Mailing it in this manner ensures that the creditor (or the company suing you) received your letter. It might protect you from additional late fees or interest. Did Someone Steal Your Identity? If you’re the victim of identity theft and have fraud prevention through your bank, credit union, credit card company, or a third party, you might not have to pay anything. If you don’t have these protections, you could negotiate with the creditor. Even though you end up paying for something you didn’t purchase, the creditor can clear your name — your real identity — so your credit score doesn’t suffer. Negotiate a Settlement Credit card companies prefer to settle rather than litigate, depending on the amount owed. Even a partial repayment is better than nothing. They want to avoid costly attorney fees and the time it takes to chase an unpaid debt could be used on more productive activities. You have the right to negotiate a settlement with the creditor, even when they’ve filed a suit against you. Negotiating Tips from Uncle Sam The Consumer Financial Protection Bureau (CFPB) offers these suggestions when negotiating a debt settlement: Write down a summary of your monthly expenses, including the amount you want to repay and your take-home pay. Set aside a small amount for unexpected expenses (like a flat tire) or emergencies (such as an injury). Explain your plan to the collection agency, creditor, or law firm that’s suing you. Ask if you can record the conversation to avoid any miscommunication or misunderstandings. Ask the creditor to waive late payments that add hundreds of dollars to your debt. Ask about removing additional interest on the remaining balance. Don’t pay more than you can afford. Don’t sign any agreement until you fully understand the terms and conditions. You have the right to bring an attorney with you to negotiate on your behalf. How Much Will You Have to Pay? By the time your financial struggles reach the point of being sued by a creditor, it’s clear that you probably cannot repay your debt in full. How much you will have to pay depends on the creditor, the amount, and the age of the debt. In general, debt settlements are 25 to 50 percent of the original amount. However, this amount could change if you don’t abide by the repayment schedule. Defend Yourself Some consumers successfully resolve a credit dispute through the judicial system. One of the more common defenses is challenging the creditor’s right to sue. It’s common practice for the primary creditor to sell debt. You have the right to determine if the plaintiff has the right to sue you. To challenge the creditor’s right to sue, ask for the following: A credit agreement signed by you Documentation of the debt’s chain of custody beginning with the original creditor Check the Statute of Limitations Each state has its own statutes of limitations, or deadlines, on how long creditors have to bring a lawsuit against debtors. This deadline usually starts on the last day you were active on an account. If you prove that the creditor filed a lawsuit after the statute of limitations expired, the court will likely dismiss the case. File for Bankruptcy Filing for bankruptcy is usually the last option when you’re facing a creditor’s lawsuit. However, a petition for bankruptcy with the court stops all debt collection activity. Bankruptcy can wipe your debts away, but it also makes it challenging to borrow money in the future while your credit score recovers. It is in your best interest to explore other options before filing for bankruptcy, such as debt settlement or even debt consolidation. Can You Sue the Creditor? Creditors have the right to take legal action for a valid debt. You have the right to pursue legal action under the Federal Debt Collection Practices Act (FDCPA). When a creditor or their authorized representative uses unethical or unlawful collection methods, you might have grounds for legal action for FDCPA violations. Debt Collection Actions with Legal Consequences for the Creditor According to the FDCPA, creditors may not: Call you at your job or home during inappropriate hours (usually, between 9:00 p.m. to 8:00 a.m.). Make repeated phone calls (for example, calling you three times in a day). Call after being informed that you cannot pay your debt, or an attorney is representing you. Use verbal or physical threats to force you into paying. Make your delinquent debt public (or threaten to). Impersonate an attorney or imply that they are an attorney. Threaten you with arrest or imprisonment. Deposit or threaten to deposit a postdated check before the written date. Closing Thoughts You can settle your debt when a creditor sues you or takes one of the other actions outlined above. However, the one thing you absolutely should never do is ignore a legal summons or complaint. If you fail to respond to the lawsuit, the creditor will probably get a default judgment against you. You might have to pay for the creditor's legal fees, court costs, and interest on the balance due. Worse, the creditor might be allowed to garnish your wages or intercept a tax refund. Remember, there’s no shame in falling behind on loans or credit cards. You have several options to climb out of a financial hole, including working with a bankruptcy and debt relief law firm. Award-winning attorney Jeremiah Heck focuses primarily on consumer law and legal representation in real estate, employment, and personal injury. His firm, Luftman, Heck & Associates, defends individuals in many types of consumer protection cases, including debt settlement and bankruptcy. He offers a legal perspective on consumer protection issues for SmartMoney.com, a prominent online financial website.
If you have overwhelming debt that you’re ready to pay off, you may be interested in getting help from a debt relief company. Debt relief companies can help borrowers eliminate their credit card debt, student loan debt, medical debt, and other types of unsecured debt through debt settlement and debt consolidation. But with more than 100 debt relief companies listed on BestCompany.com, how do you know who is the best debt relief company to work with? The more than 19,000 real customer reviews offer some insights. If you’re looking for a debt relief company, consider these factors from 5,888 reviews from verified customers from May 31, 2018 to May 31, 2020. Great customer service Customer service was a common theme in both positive and negative debt relief company reviews. Out of 5,053 five-star reviews, about 22 percent mention “service,” while about 11 percent of one- and two-star reviews mention “customer service.” Resolving your debt can take anywhere from a few months to several years. Choosing a company that answers your questions in a timely manner can make the process much smoother. One verified customer of Freedom Debt Relief, the highest-rated debt relief company on BestCompany.com, wrote that the company has an entire team of people it can refer customers to if the customer service representative they speak with can’t answer their question. “They do what they say they're going to do and give great support,” Angela wrote. “I'm very confident in them and very happy I signed up.” Clear terms Make sure to get a clear understanding of how your debt relief program will work, including how long it will take. Many negative reviews of debt relief companies mentioned misunderstandings over the timeline. For example, Eric from Jersey City, New Jersey, wrote about Freedom Debt Relief, “I did not like the uncertainty of the end cost and graduation date moving all over the place. I always paid on time and more than the agreed amount, but the graduation date currently extends several months beyond the four-year agreed period. This is not at all what I understood when I signed the agreement.” Be sure to find out how long it could take to finish the debt relief process. Other reviews complained about not realizing debt settlement might open them up to legal action or negative effects on their credit score. If you’re pursuing debt settlement, it’s important to understand that withholding payment from your creditors could lead to them pursuing legal action against you and will likely lower your credit score, as well. Only work with debt settlement companies that are honest about these risks upfront. The right kind of debt relief services While some debt relief companies offer both debt consolidation and debt settlement, some only offer one or the other. Debt consolidation is consolidating several debts into a single debt, often through a debt consolidation loan. Debt consolidation is often a better option for those who have a good credit score, as this can help borrowers obtain a consolidation loan with a lower interest rate. Debt consolidation may also be right for you if high-interest debt is a concern. Debt settlement involves negotiating with creditors to have part of your debt forgiven. When you enroll in a debt settlement program, you typically stop paying your creditors and instead save that money for a later lump sum payment. Meanwhile, the debt settlement company works on negotiating with your creditors to reduce your debt, in exchange for paying it off in a lump sum. Debt settlement often hurts your credit score initially, when you stop making payments, and it could result in higher taxes because the IRS considers forgiven debt to be taxable income. But it could also reduce your total debt amount significantly. Debt settlement may be the right option for you if you’re most concerned about the amount of debt you hold. Once you decide whether you’re interested in debt consolidation or debt settlement, make sure you choose a company that offers that service. Affordable pricing The cost of debt relief services came up frequently in BestCompany.com debt relief reviews. About 12 percent of reviews from verified customers mentioned the words “money,” “cost,” “price,” or “fee.” Even a five-star review of Freedom Debt Relief from a verified customer mentioned high prices as a negative. “Their negotiations are excellent but their fees (are) a little high,” Anita wrote. Some debt relief companies base their prices on a percentage of the customer’s enrolled debt, some base their pricing on the amount of money they save the customer, and others simply charge a flat-rate fee. A flat-rate fee may be a good option if you have a large amount of debt you’re planning to enroll in a debt relief program. Performance-based pricing is also a good sign in a debt relief company — this pricing model demonstrates faith in the company’s ability to save borrowers money on their debt. Before you sign any contracts, be sure to find out all the fees associated with the company’s debt relief services. Compatibility with your situation Debt relief companies have different requirements and availability. For example, not all debt relief companies operate in every state. As you’re narrowing down your options, make sure the companies you want to work with operate in the state where you live. Some companies offer services in states where they don’t have a physical presence. If you don’t mind working with a company over the phone or email, that may not be a problem for you. However, if it’s important to you to be able to meet with company representatives in person, make sure they have an office location that’s accessible to you. Many debt relief companies also have minimum debt requirements; if your total debt amount is lower than the minimum debt requirement, you won’t be able to use the company’s services. One reviewer wrote of Pacific Debt, “They couldn't offer any kind of debt relief because your debt had to be 10,000 or more.” Also be sure that the debt relief companies you’re interested in handle the kinds of debt you hold. Some companies specialize in certain specific kinds of debt, and some debt relief methods only work for unsecured debt. Finding the right debt relief company You can avoid many problems down the road if you do your research upfront, making sure to choose a debt relief company that offers the right kind of services for your specific situation, with affordable pricing and great customer service. One way to find those companies is to compare debt relief company reviews from real customers. Once you’ve narrowed down your list of potential companies to work with, it’s also a good idea to take advantage of a free consultation and speak with a company representative, asking any relevant questions about the services they provide. With research and data on your side, you can find the right debt relief company for your needs.
This is Chapter 4 of 5 in our Ultimate Guide to Debt Relief series. If you’re overwhelmed with debt and want to be debt-free as soon as possible, debt settlement can be a good option. It allows you to become debt-free by negotiating with creditors to forgive part of your debt. Debt settlement is not for everyone and carries some risks. It’s important to keep this in mind as you consider debt settlement. Here’s what you need to know: What is debt settlement? How does debt settlement work? What percentage of debt is usually accepted in settlement? How does debt settlement affect credit? Should I work with a company or negotiate for myself? What is the best debt settlement company? What is debt settlement? Debt settlement is the process of negotiating with creditors to settle for less than you owe. You can work with a debt settlement company that will work with creditors on your behalf or you can negotiate on your own. Settlement is typically used for unsecured debt, which is debt without collateral. Credit card debt is an example of unsecured debt. Secured debt has collateral that the creditor can use to recoup their loss if you fail to pay. Examples of secured debt include auto loans and mortgages. Back to List How does debt settlement work? If you work with a debt settlement company, you’ll typically stop paying your creditors to help incentivize a settlement agreement. Instead, you’ll set aside money into a separate account that you control to be used to pay settlements once agreements are made. Once settlements are reached and paid, you’ll owe the debt settlement company for its services. Costs are determined by state law and range between 15 and 25 percent of your total enrolled debt. If you negotiate on your own, you’ll need to determine who each of your creditors are and what kinds of offers you’re going to make to each one. If you’re going to negotiate lump-sum payments, have some cash ready to make those payments. Keep in mind that the IRS considers forgiven debt taxable income. You may owe more taxes due to a successful settlement than usual. Be prepared to set more money aside in withholdings so that you aren’t surprised with tax debt when you file your return. As you consider debt settlement, you should be aware of the risks. “The biggest risk is that you withhold payment for months and then one or more creditors sues you. Then you have the costs of the settlement, the taxes you'll owe on settled amounts, the fees, if any, that you pay to a settlement company, court costs and a judgment to your creditor. That's the worst case scenario,” says Gina Pogol, MoneyRates personal loans managing editor. However, you still have options if a creditor starts seeking legal action, whether or not you’re enrolled in a settlement program. “If one or more creditors threaten legal action, you should contact them and try to negotiate a compromise. If you are truly overwhelmed with debt, consider bankruptcy. That does stop lawsuits and does protect you. Even the threat of bankruptcy can motivate creditors to negotiate with you. Because in a bankruptcy filing, the court distributes payments and the creditors may get much less than if they work things out with you,” advises Pogol. Back to List What percentage of debt is usually accepted in a settlement? It’s hard to say what a creditor will accept in a settlement. A lot depends on the creditor’s own financial situation, how much you owe, and the negotiator’s skills. Some debt settlement companies boast of the ability to negotiate your debt to as much as half of what you owe. However, these statements should not be taken as a guarantee because the creditor ultimately makes the decision on whether or not they’ll settle with you. If you’re negotiating lump-sum settlements on your own, it’s best to have between 20 and 50 percent of what you owe in cash that you can make a payment with. Whether you hire a company or negotiate yourself, you should have realistic expectations about how much you can save on your debt. “The important thing is to understand that creditors don't settle unless they believe it's in their best interest to do so. And the 'pennies on the dollar' claim that settlement companies advertise has some caveats. You can settle a very old collection account that was purchased by a debt collector for much less than you can a recent default to a primary creditor. That is because the debt collector with an old collection probably paid pennies on the dollar for the right to collect your debt. On average, these guys buy old debt for about 4 cents on the dollar. So they can make a profit if you offer 10 cents. You can settle a $2,000 debt for $200 in that way. However, it might not be a great idea. Collections drop off your credit report after seven years. But settling that old debt makes it new and can harm your credit score. A recent default to a primary creditor, for instance, your VISA card, might be settled for 25 percent to 50 percent of the balance,” says Pogol. Back to List How does debt settlement affect your credit? Debt settlement typically has a negative effect on your credit score and typically shows up on your credit report for seven years. In most cases, you won’t make any more payments on any of your current debts. This will negatively impact your credit score. Luckily, if you change your financial habits, you can raise your score over time. “As long as you keep up with your other obligations, whether it is a mortgage or auto loan, your credit score can rebound within one to two years. To accelerate this rebuilding process, you should try to open up a low limit credit card, or even a secured credit card, which will be easier to obtain. Paying these balances in full each month will slowly but surely increase your credit score and help you return to good standing with your credit,” suggests James Lambridis, DebtMD founder and CEO. Once you’re debt-free, budget carefully and save to avoid debt. As you successfully manage your finances, you’ll be able to start increasing your credit score. Each of the debts that you settle are marked as “settled” on your credit report. These markers stay on your credit report. However, the more time you place between your settled debts with good financial habits and keeping your debt low, the less it will matter. There are also steps you can take to reduce the negative effect on your credit report. “Debt settlement's effect on your credit depends on how you settle and how you negotiate the terms. If you make your payments on time and then offer a lump sum, AND get the creditor to report the account 'paid as agreed,' you have no repercussions. But, that would be a rare occurrence,” says Pogol. If you’re negotiating with a collections agency, you can negotiate a pay-for-delete. “A pay-for-delete means they remove the collection from your credit report in exchange for your payment. More typically, consumers miss payments for months, then settle and it's reported as ‘settled for less than the amount owed,’ which does real damage,” adds Pogol. Keep in mind that even if you can negotiate some things on your credit report, you can’t remove any public record of legal action. Pogol continues, “If any of the creditors take you to court, you have a public record in addition to the collection and missed payments.” Once you finish settlement, you should carefully review your credit report. “One step in improving credit is to continue to check all your credit reports to make sure everything is reported correctly. This will help you to catch errors that need to be disputed. It also helps you to discover information that is not included in the reports that should be,” advises JeFreda R. Brown, Provision Financial Education CEO, Certified Financial Education Instructor, and Adjunct Finance Professor. Rebuilding your credit after completing settlement can take some time. The most important part of rebuilding and moving forward is to develop strong financial habits and be consistent. “An important part of improving credit is to also seek education. Getting personal financial education is vital. You need to be able to understand how your emotions, desires, and value affects your financial behavior. Financial psychology is a part of personal financial education that helps people learn these things and how to start changing negative financial behavior,” suggests Brown. Understanding how you got into your financial situation will help you make different choices in the future. Maybe you’ll prioritize savings as you budget or limit your credit card use to certain kinds of purchases. “Pay your bills on time, begin a savings fund, and begin to regularly monitor your credit report. Awareness is the first step towards improving the overall picture,” recommends Mike Weaver of Money Ladder. Back to List Should I work with a company or negotiate for myself? If debt settlement is the approach you want to take, you’ll have to decide between negotiating yourself or hiring a company to do it for you. Negotiating on your own The largest advantage of negotiating on your own is that you are fully in charge. You don’t have to rely on recaps from someone else. You also won’t have to spend money on negotiation fees, which can add to your total “get-out-of-debt” costs. If you negotiate yourself, you may be able to explore other items that can be negotiated in addition to lump sum payments. Settlement companies may not explore these other options on your behalf. These additional options include interest, minimum payments, creating a hardship plan or workout agreement, and debt management. You may also be successful in negotiating how your settled debt will show up on your credit report. The biggest drawback of negotiating yourself is the time commitment and the emotional work it can take. Negotiating for yourself can be an empowering experience. However, negotiations can take time and not always seem like they are getting somewhere. This aspect of the negotiation process can take an emotional toll because of heightened stress about your finances and working out a deal. Another drawback is that your success negotiating on your own depends largely on your own negotiation skills. If you have great negotiation skills, that’s great. If not, you may not get as good settlements as you might by working with an experienced negotiator. Tips for negotiating on your own “If someone is negotiating their own debts, they definitely need to learn some key terms (definitions) so they understand credit and debt better. They also need to be able to have a knowledgeable conversation with their creditors to show the creditors that they cannot be taken advantage of. This will also show creditors that you are serious about paying your debt,” says Brown. Gather information. Know the full amount you owe on each account. Create a monthly budget and understand what your regular income looks like. This information is important to share with any one you work with who’s giving you advice on your debt strategy. Be familiar with financial lingo. If possible, it’s worthwhile to consult with an attorney. An attorney may be able to give you insight on how debt laws apply to your situation, which can inform your strategy going forward. Know your creditor. If your initial creditor has sold your debts to a collections agency or another creditor, you need to know so that you start negotiating with the right person. Once you know who you’re working with, you also need to research each creditor’s policies regarding settlement agreements. This knowledge will help you create acceptable offers. Have a plan. Before you contact your creditor to start negotiations, you need to have an offer ready. Your initial offer should be based on what the creditor will accept, your current situation, and should be the most ideal situation for you. “The most important thing for a person to know when negotiating debts involves knowing your terms. If you have an expert’s advice before going into the negotiation, and you don’t allow yourself to be pressured or swayed regarding what you can and can’t do, you’ll be in much better shape,” says Weaver. Being certain of what terms you can accept and knowing your other options if a settlement is not accepted will help you be more successful. Before you make your initial offer, be sure that you have the funds on hand to pay it if it is accepted. “You'd first need to come up with a sum of money to offer the creditors — say 25 percent of what you owe. Then, you'd send them all a letter offering that 25 percent as payment in full. Or, you'd offer an upfront sum plus a series of payments totaling some percentage of the balance owed. You would not send them anything without confirmation in writing that they will accept this,” says Pogol. It can be helpful to have a counteroffer ready in case the creditor doesn’t accept your first offer. Before you make a counteroffer, you need to understand why the creditor rejected your first offer. This can help you decide how to approach your counteroffer or next step. Explain your situation. While creditors probably don’t want to hear a bunch of excuses for not being able to make payments, it’s important to let them know if there’s anything uniquely challenging about your situation. “You should always be sincere and truthful to the credit card companies. If you have a serious financial hardship, whether it’s a job loss or unexpected injury requiring you to take on medical bills, be sure to convey this to your creditors. They are more likely to work with people who are experiencing a hardship. In the end, they would rather recoup some money rather than nothing,” says Lambridis. Before you talk to creditors, practice brief statements that clearly explain your situation and why you need some concessions from them. Be honest and don’t overstate your reasons for being behind on payments. Ask questions. As you work with creditors, keep asking questions. The more questions you ask, the more information you’ll have about how the creditor handles settlement negotiations and what other concerns they might have. Brown recommends a few topics to ask questions about: “If someone is negotiating their own settlements, they need to understand how the creditors will report the settlements on the person’s credit report. The way that the debt settlement is reported has a major effect on the credit score. It would have a negative effect on a person’s credit score if a creditor reports the debt settlement like a bankruptcy. Additionally, find out from the creditors what the effects of the settlement will be on your credit score. Stop using credit, and do not apply for more credit while negotiating settlements and while in the program. Find out from the creditor how long it will take them to report that the debt is being paid and has been paid. It should typically be reflected within 30 days.” Take notes and save your mail. Document your interactions, especially if they are verbal. Taking notes will help you remember how things stand with each creditor, which is important when negotiating multiple accounts. Review and keep any communication you receive about your accounts from the creditor. Get everything in writing. Before you make any payments, be sure to get the agreement in writing. Make sure that the agreement has everything you discussed with the creditor and that you understand the terms. If you have a question or something is missing, work with the creditor again to get those things corrected. Stick to the terms. Carefully stick to the terms of the agreement. If you do not keep the terms, then the agreement is void. It’s unlikely that the creditor will renegotiate with you, and you’ll be back in the situation you negotiated out of. Hiring a settlement company The best part of hiring a company to negotiate settlements is that you’ll have an experienced negotiator working on your case. Having someone with negotiation experience on your side can help you get the best settlements possible. Furthermore, you won’t have to deal with the emotional work of negotiating for yourself. Because you won’t be doing the negotiating yourself, you’ll want to pick a company that offers good client communication. Most companies offer an online portal that clients can use at any time to check the status and progress of their account, which is helpful and convenient. However, you’ll have to pay the company for its services, which can be expensive depending on how much debt you enroll and how much the company charges. Depending on state laws, debt settlement companies charge 15 to 25 percent of the total debt enrolled in the program. Fees are only collected once settlements are reached, so there are no upfront costs. Stay away from settlement companies that do charge upfront fees. Take advantage of a free consultation to learn more about a company’s settlement program, cost, and how to disenroll from the program if your situation changes. Most settlement companies have minimum debt requirements. In order to qualify for their services, you’ll have to enroll at least that much debt. Most companies won’t accept total debt amounts under $7,500. Some companies have higher requirements. Tips for choosing a good debt settlement company “People should definitely find out beforehand what a debt settlement company’s procedures and policies are. Read the fine print. Don’t sign anything or agree to anything that you do not understand. Definitely do not enroll in a program if you have been pressured to do so by the company’s representative(s),” advises Brown. As you’re vetting debt settlement companies, you need to ask questions to make sure you understand the program and feel comfortable trusting the company with your case. Below are questions you should ask as you evaluate settlement companies. What is the company’s track record and experience? You’ll want to pick a company that has several years of experience and a good track record of successfully negotiating settlements. What do customer reviews say? While the company’s website will tell you plenty of positive things about the company, it is usually biased. Visit third-party review sites to read customer reviews to get a full picture of how well the company serves its clients. Does the company offer a free consultation? It’s standard for debt settlement companies to offer a free consultation to review potential clients’ cases. If you’re considering a company that does not offer free consultations or are asked to pay upfront fees, you should find another company. Upfront fees and no free consultations are red flags in debt settlement. Will I have one point of contact for questions and updates on my account? This question will help you gauge the kind of communication that you can expect throughout the settlement process. Will a single representative or a team handle my case? Asking this question will help you understand the company’s approach to customer service and negotiation. There are pros and cons to each scenario, and you just need to be comfortable with the process. How does the savings account for monthly payments work? Keep in mind that the monthly payment goes into a bank account under your control to save up for paying settlements. Make sure you understand how to access information on your account. You also need to understand if and how the available funds in your account will be accessed and used on your behalf. What happens if I want to withdraw from the program? You should be able to withdraw from the settlement program at any time. “In their contracts, most reputable debt settlement companies have a 'notice of right to cancel' which you can simply sign and send to them to withdraw yourself from the agreement. You should be wary of companies who make it difficult to cancel, as these are the ones who may not have their clients’ best interests in mind,” advises Lambridis. Program withdrawal policies and processes may vary by company, so be sure to understand how this process works before enrolling. Asking the questions above will help you understand a company’s approach and determine whether or not it is a good fit. Back to List What is the best debt settlement company? Because debt settlement has so many risks and the reward is more uncertain than with other methods, it’s important to choose your debt settlement company carefully. The questions in the previous section will help you vet companies to find a good fit. Best Company also ranks debt settlement companies by weighting customer reviews and considering other industry factors like time in business. No company can pay for a ranking on our site. For more information on how Best Company ranks debt relief companies, visit our “How We Rank” page. To see which company gets the top recommendation, visit the debt relief homepage. Back to List
Written By: Stan Brown Cash-strapped consumers staring at mounting credit card debt, student loans, and car payments know all too well the dread of answering the phone or opening an email. After all, chances are it will be a creditor looking for repayment. Unfortunately, scammers also know the desperation these struggling borrowers face and prey on them with debt relief scams. Scammers will tell people that they will help them pay or settle their debt for a fee. In reality, they take money from consumers and disappear, leaving the victim out the payment, typically a high one, and still stuck with their debt. In some cases, consumers don’t immediately realize they have been scammed, and as a result, their accounts default and their credit scores deteriorate. These scams aren’t going away anytime soon given the outstanding U.S. consumer debt, which stands at $3.9 trillion. Of that, $1.03 trillion is in revolving debt with 41.2 percent of all households having some form of credit card debt. Add student loans to the mix, and it is not surprising that the bad guys find fertile ground. While most consumers are aware that if it seems too good to be true, then it usually is, that isn’t stopping them from getting scammed. With piles of credit card debt flooding their mailbox each month, they are desperate for help and are more willing to believe the unbelievable. But you don’t have to be the next victim of a debt relief scam. There are telltale signs that the offers aren't legit. Here’s a look at five of them: 1. They come out of the woodwork Scammers don’t know you and as a result, can’t pick up the phone and text you an offer to help you get out of debt. They will instead resort to all sorts of tactics to pique your interest whether that means sending an offer via the mail, reaching you via phone call, or blanketing your email with ways to pay down your crippling debt. Recently, they have also turned to social media to find their next victims. If you are on the receiving end of one of these unsolicited communications, that should raise a red flag. Yes, legitimate debt relief companies will use the same means to reach you, but the scammers tend to be more aggressive. If you are getting contacted with promises to wipe away your debt and it seems too good to be true, it probably is. There are plenty of services out there that can help. Contacting one yourself — after researching the company and the service — is a much better way to protect yourself from getting scammed then acting on an unsolicited sales pitch for relief. 2. They charge an upfront fee According to the Better Business Bureau, a common thread between all debt relief scams is the request for an upfront payment to help you get out of debt. The scammers make all sorts of promises for the fee but can’t deliver on any of them. Some scammers will tell you they can remove late payments or bankruptcy from your credit report, offer to give you a new, clean credit identity, or claim to negotiate with the lenders or credit card companies to get rid of the debt entirely. A legitimate debt relief company won’t require you to make a payment up front. The practice, after all, is illegal. What’s more, there is never a guarantee that creditors will forgive debts nor is it a service you need to pay for. 3. They deploy aggressive sales tactics Scammers want to hook you within the first attempt and will employ aggressive sales tactics to get your money or sensitive information. If you are dealing with a debt relief company that tells you to act now or lose the ability to access its services, that's an indication that the company is not legit. The same goes for any tactics pressuring you to decide on the spot. Reputable companies will give you time to consider the services they offer and the fees attached to them. Scammers will not. If you are dealing with a purported company that is being overly aggressive, hang up the phone, delete the email, or toss the mail in the trash. 4. They want your personal information For scammers and hackers, your sensitive information — such as social security number and bank account login credentials — are the keys to your castle, and they will go to great lengths to get them. One way is through a debt relief scam. When pretending to help customers get out of debt, they will request personal information including your social security number. Armed with that, they can steal your identity to open up credit cards in your name or otherwise hurt your finances. These unscrupulous companies will also ask for account information, so they can supposedly go into your accounts and make payment decisions for you. No legitimate credit counseling agency will ask for your social security number, and certainly not through the phone or email. If the debt relief companies require any of this information, it's a red flag that something is amiss. Final Thoughts The ease with which consumers can access credit has resulted in a nation that owes a lot of money. That can be very challenging for scores of people who are living paycheck to paycheck and even those who aren’t. While shedding the burden of such mounting debt is always the goal, how you approach the process is vitally important. Debt relief scams are plentiful — with the bad guys making unrealistic promises for a fee. They often disappear with the cash in hand leaving the victim in an even worse financial position. If it seems too good to be true, it is. There are many nonprofit and for-profit legitimate debt relief companies that will help you manage the amount you owe. They will never charge an upfront fee, require you to offer up personal information, or make promises they can’t fulfill. -- Stan Brown is a writer and analyst for a multinational bank. He has over 15 years of experience in the financial industry and draws on that experience to write about finances for various websites.
Updated December 31, 2019 You're looking for debt relief options because you're either deep in debt, or you know someone who is deep in debt. That’s how you learned about Freedom Debt Relief (FDR). With the right debt relief company, you could see your debts significantly reduced. After reading this article, you’ll know whether Freedom Debt Relief will be able to help resolve your debt at a price you can afford. You may be considering bankruptcy, debt settlement, credit counseling, or debt consolidation. Maybe you’re already in the process of deciding between Freedom Debt Relief and National Debt Relief, Pacific Debt Inc., CuraDebt, and other top debt relief companies. No matter where you are in the process, make sure you check out these 11 important facts about Freedom Debt Relief: 1. Highly Positive Customer Reviews As of December 2019, BestCompany.com has received over 11,100 Freedom Debt Relief customer reviews and the majority of those customer reviews give high praise to the debt settlement company. Debt settlement is a highly debated industry — between the lowering of your credit score to the downside of bankruptcy, people have been all over the map in terms of opinions. That’s why it’s even more important to pay attention to what the customers are saying. While some customer reviews focus on the availability of the customer service (Freedom Debt Relief is open seven days a week), other customer reviews attest to the company’s ability to provide actual, tangible results in debt negotiation. Freedom Debt Relief reviews range from praise of the company’s systematic approach of tackling debt to the kindness and professionalism of Freedom’s debt experts. One customer relates her search for a debt relief company that didn’t have antiquated and unrealistic policies. She explains Freedom Debt Relief was her final decision because of its ability to allow her to keep using some of her credit, giving her a sense of control over her credit score. She goes on to say that the debt relief experts at Freedom Debt Relief took the time to explain the pros and cons of her financial decisions regarding her debt. At the time this article was last updated, Freedom Debt Relief reviews numbered 11,118 which resulted in a grand total of 4.7 stars out of 5. What does this mean for Freedom Debt Relief? It means that despite catering to a large customer base, the large majority of customers feel so confident in the company's debt relief services, that they leave positive reviews in droves. Most customer reviews refer to the quality and expertise of the employees at Freedom Debt Relief. The most common positive customer reviews applaud the following aspects of Freedom Debt Relief: Quick debt relief services "Top-notch" customer service Respectful explanation of personal financial situation Thorough explanation of debt relief options Informative tax experts Stress-free service True to their word Despite the positivity in the vast majority of its customer reviews, customers should also be aware of the negative reviews associated with Freedom Debt Relief. Make sure to get a good grasp on what customers are saying about any given company before making a final decision. 2. Some Negative Customer Reviews The few negative customer reviews of Freedom Debt Relief mostly refer to the company's apparent inability to predict the amount of debt that would be settled. Though this may be a concern for most customers, you should know that estimating a settlement amount will be extremely difficult for any debt settlement company. Other negative customer reviews have expressed regret that the debt settlement process takes so long and the fact that debt settlement reduces their credit score to the degree that it does. The reduction of customer credit score is another complaint that is seen across the debt relief industry. Here are a few of the other complaints customers have about Freedom Debt Relief: Incorrect items processed Higher initial fees Settlement process take too long 3. Great Settlement Program Likely the best part about Freedom Debt Relief, a subsidiary of Freedom Financial Network, is the fact that the company assigns a specific debt expert to each client. One of the complaints that customers have about debt settlement companies specifically is that they only care about making money. When a debt settlement company assigns a dedicated debt consultant to each client, it goes a long way in showing customers that they care. Aside from assigned reps, customer reviews have indicated that Freedom Debt Relief takes the time to cover all possible options with the customer before having them sign a contract. Customers will also take comfort in knowing that Freedom Debt Relief has a solid history of successful debt negotiation. Though no debt settlement company can guarantee results, customers can look to both positive and negative debt settlement reviews in order to get the most accurate, up-to-date, and trustworthy information possible. 4. Online Customer Dashboard Once customers sign up with Freedom Debt Relief, they receive access to the FDR client dashboard. The inclusion of an online dashboard gives customers the ability to track their pace through the debt settlement plan, staying ahead of their creditors on their journey to financial freedom. Though several other debt relief companies also provide online client dashboards on their websites, it's nice to know that Freedom Debt Relief is making an effort to loop in customers on their negotiation status. 5. State Availability One of the slight downsides of its service is the fact that Freedom Debt Relief doesn't service all states. It is somewhat understandable, as every state has different limitations and qualifications for debt relief companies, but there are companies that offer more state availability than others. Freedom Debt Relief is available in 38 states, Washington, D.C., Puerto Rico, Guam, and American Samoa. Though many debt relief companies offer services to the entire United States, customers report that FDR's services are thorough and expert. Freedom Debt Relief does not provide its services in the following states: Colorado Hawaii Illinois Maine North Dakota New Jersey Oregon South Carolina Vermont Washington West Virgina Wyoming 6. Industry Experience Freedom Debt Relief has been negotiating and settling the debts of its customers since 2002. Such experience gives company representatives the know-how to advise customers in even the most unique and dire of financial troubles. Debt problems are always unique to the individual, so company experience can be a huge factor in determining the best debt relief company. 7. Industry Accreditations Another factor to consider is the company's history of accreditations and qualifications. Accreditations show customers that a given debt relief company adheres to industry standards and guidelines necessary for successful negotiations and a quality customer experience. Fortunately, Freedom Debt Relief has an accreditation from the American Fair Credit Council (AFCC). The AFCC is the leading association of professional consumer credit advocates. Its purpose is to identify companies that support and advocate for consumers struggling with debt. The AFCC also ensures that its accredited companies adhere to industry "best practices" for debt relief providers. 8. Possibly Higher Prices It is not unheard of for specialized debt relief companies to charge 15 percent, 10 percent, and even down to 5 percent of customer's total enrolled debt. Of course, higher debt usually means lower fees in the debt relief industry. So, exactly how much does Freedom Debt Relief charge? As it stands, Freedom Debt Relief charges an average of 20 percent of a customer's enrolled debt. This means that if a customer enrolls $50,000 in FDR's debt settlement plan, and the company settles $35,000 of that debt, the customer still has to pay fees of $10,000 plus that amount still owed to their creditors. In this case, the customer pays $25,750 ($10,750 + $15,000) instead of paying the original $50,000. Freedom Debt Relief's fee could be anywhere from 18 percent to 25 percent of the enrolled debt. The total amount a customer pays, in the end, will depend on how well the debt negotiation goes. Customers should have a good idea about what percentage they will be charged when they complete their free consultation. 9. $7,500 Minimum Debt Requirement Customers will have to have more than $7,500 in unsecured debt to work with Freedom Debt Relief. Debt relief companies have minimum debt requirements because it no longer benefits both the company and the client to negotiate debts so small. The problem is that some customers with debt under $7,500 still need debt relief services. So, what should you do if have less than $7,500 in unsecured debt, but still need help with your debt issues? Consider a credit counseling firm or a financial education company. Consumer credit counseling is a cheap way to handle smaller, more manageable debts and is a great alternative to debt settlement programs. A debt consolidation program may also be an option. Take a look at all debt relief companies in order to get the full range of your options. 10. Over $10 Billion Settled Because Freedom Debt Relief has one of the biggest debt settlement programs in the nation, the company is able to handle a large number of clients and still provide each client with a dedicated debt expert. Through its financial guidance and negotiation services, FDR has been able to successfully settle over $10 billion in debt. This is a great track record. 11. Settlement of a Variety of Debt Types Freedom Debt Relief can settle any type of unsecured debt, which is debt that does not have any assets tied to it. This can be anything from student loan debt, credit card debt, and medical debt to debt accrued from unpaid utility bills. FDR has been able to employ a variety of debt negotiation and debt reduction tactics to fit the unique situation of each customer. Over the years, these debt relief solutions have led to a qualified and expert staff of debt management specialists. Freedom Debt Relief Read Freedom Debt Relief customer reviews on bestcompany.com in order to get the full spectrum of voices, complaints, and praises for the best debt reduction companies in the industry. Read Reviews
Updated December 31, 2019 Freedom Debt Relief or National Debt Relief? National Debt Relief is a company that specializes in debt settlement. NDR will negotiate with your creditors to reduce your total debt amount without charging a fee until after the settlement has occurred. Freedom Debt Relief provides the same settlement service. The question is: which company is better at settling debt? In short, we think you'll be happier with Freedom Debt Relief simply because of the vast number of happy customers it has. But, National Debt Relief also has many strengths, such as its price and state availability. We've prepared a side-by-side snapshot of two of the most popular debt relief companies. If you are considering debt settlement, here's a quick look at two of the major leaders in the industry. Freedom Debt Relief vs. National Debt Relief Which is better: Freedom Debt Relief or National Debt Relief? When you compare the two debt relief companies, National Debt Relief appears to have lower fees and serves more states, but Freedom Debt Relief has higher customer satisfaction and much more debt settlement experience. At the end of 2019, Freedom Debt Relief had over 11,100 reviews with an average star-rating 4.7 stars out of 5 on BestCompany.com. At the same time in 2019, National Debt Relief had over 460 user reviews with an average star-rating of 4.3 out of 5. [For the most current stats, view Freedom Debt Relief's and National Debt Relief's profiles.] Both companies use debt settlement to negotiate a lower total debt for their customers. Both companies have considerable experience in negotiating debt. National Debt Relief has slightly lower fees while Freedom Debt Relief has a higher customer satisfaction on BestCompany.com. We recommend Freedom Debt Relief. Exactly how much does Freedom Debt Relief cost? Freedom Debt Relief charges customers 15 to 25 percent of their total enrolled debt depending on where they live. With higher debt, you will likely see higher savings. So the 20 percent average fee might actually be lower. Much like consumers must compare online quotes to find the best auto insurance companies, in order to get a more accurate estimate, you should contact Freedom Debt Relief for a free consultation. How much does National Debt Relief cost? National Debt Relief costs an average of 18 to 25 percent of the total enrolled debt. The company can usually cut your debt in half. So if you owe $20,000, National Debt Relief can negotiate it down to $10,000 and will charge you between $3,600 and $5,000. This means that you would pay between $13,600 and $15,000 instead of the original $20,000. Potential customers should know that individual cost will vary according to your credit situation, debt amount, and your creditors. Savings will vary even more because creditors are under no obligation to negotiate a lower debt amount. It is usually in the best interest of creditors to reduce the amount of your debt. In the mind of the lenders, it's better to get some of the money from debtors instead of none of it. Customers can contact National Debt Relief for a free consultation and estimate. What is debt settlement? Debt settlement is the process of settling your debts for less than the original owed amount. After a free consultation to discuss your unique financial situation, a good debt settlement company would create a program designed to fit your needs. You make payments to a special savings account for a designated period of time, typically over the course of several months. Once an appropriate sum is reached, the company will negotiate with your creditors, striving to the settle the debt for as little as possible. Once they have reached an agreement, the debt will be resolved by using the funds you have already accrued in the special savings account. Are debt relief companies legitimate? Sadly, there are many fraudulent debt relief companies. The Federal Trade Commission warns consumers to beware of debt settlement companies that charge upfront fees, as it violates the FTC's Telemarketing Sales Rule. Just like with IRS debt forgiveness, it is critical to look for companies that are compliant with the Telemarketing Sales Rule and other FTC regulations, including being transparent about their fees, setting up realistic expectations about settlements, and alerting you about the potential consequences and risks associated with debt settlement. Which accreditations does the debt relief company have? Accreditations can provide additional assurance that your chosen company is following ethical industry practices and are provided by third-party organizations designed to help regulate the debt relief industry. The two most important accreditations are the American Fair Credit Council (AFCC) and the International Association of Professional Debt Arbitrators (IAPDA). The AFCC is an association of professional Consumer Credit Advocates; its purpose is to support consumers struggling with debt issues, to define debt relief best practices, and to push for consumer-focused legislation. The IAPDA is an organization which trains and certifies debt negotiation professionals. Any debt relief company you consider should be accredited by at least one, but preferably both of these accreditation organizations. Freedom Debt Relief has an A+ rating with the Better Business Bureau (BBB). It is a founding member of the AFCC and holds a Platinum standing with the IAPDA, which indicates that their debt consultants have been trained extensively in a comprehensive range of debt relief options, laws, legislation, and more. The company was also involved in establishing the 2010 FTC compliance rules and complies with the FTC’s Telemarketing Sales Rule. National Debt Relief has an A+ rating with the Better Business Bureau (BBB). It is a member of the AFCC and is certified by the IAPDA. The company complies with the FTC's Telemarketing Sales Rule. How long has the company been in business? Debt settlement is a relatively new industry, with few companies dating prior to the mid-90s. Companies with longer industry experience may offer more established relationships with creditors. Freedom Debt Relief was established in 2002, longer than many competitors. Its founders are Stanford business graduates. Since its creation, it has settled over $8 billion in debt for over 500,000 clients. The company resolves over 40,000 accounts a month and employs over 2,000 professionals. National Debt Relief was established in 2009 in New York City. It has helped over 100,000 clients become debt free by resolving over $1 billion in debt. What are the minimum debt requirements? Debt settlement is not right for everyone, particularly those with smaller amounts of debt. To benefit from debt settlement, you should have at least $7,500 in unsecured debt; however, there are often more suitable options for those with less than $10,000. Most companies only accept clients with over $7,500 in debt. FDR requires a minimum debt of $7,500 to enroll in its program. The company only accepts unsecured debt. NDR requires a minimum debt of $7,500 to enroll in its program. The company only accepts unsecured debt. In which states does the debt relief company operate? States have strict rules regulating debt settlement, therefore these companies are unable to service every state. It is important to see which company is available in your area. Freedom Debt Relief is available in the following locations (38 out of 50 states; as well as 3 of the 6 U.S. island territories) Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, New Hampshire, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia, Washington D.C., Wisconsin, Guam, Puerto Rico, American Samoa. National Debt Relief is available in the following locations (41 out of 50 states): Alabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Wyoming, Washington, D.C. How much can I save with debt relief? One way to measure debt settlement's effectiveness could be its overall savings. While the company can significantly reduce the amount you owe, they will also charge you fees that often average between 18 to 25 percent of your total enrolled debt. The fees are determined by a number of factors, primarily state regulations and willingness of creditors to settle. Freedom Debt Relief's average fee is 20 percent of your enrolled debt. National's fee varies between 18-25 percent of your enrolled debt. Clients who complete the program and settle their debt save an average of 30 percent (after fees). What do customers think about the debt relief company? 2019 Freedom Debt Relief reviews reveal a high customer satisfaction. While 2019 National Debt Relief reviews on BestCompany.com have been fewer in comparison, they show a good level of customer satisfaction. Customer reviews are a critical factor when research debt companies. It is vital to compare Freedom Debt Relief to National Debt Relief reviews from a customer's perspective because customers arrive at conclusions without ulterior business motives or benefits. For example, a customer with high credit card debt may find that NDR is actually better at negotiating credit card debt than Freedom Debt Relief. However, if other customers do not read reviews, they'll end up making a poorly informed decision regarding their own credit card debt. Real clients are simply seeking to inform potentials clients to make better decisions and can provide the most accurate feedback about the companies' services. Be sure to read multiple reviews (preferably both negative and positive) to gain a clear picture of the strengths and weakness of each company. Freedom Debt Relief reviews (2019) praise: Great customer service Great savings Provides quick savings Ability to check progress online Knowledgeable, informative Keep customers informed Kind employees who don't pressure customers into decisions Ability to check progress online Freedom Debt Relief complaints: Length of the process Creditors wouldn't negotiate with FDR Customers receiving calls from creditors Complaints about high fees National Debt Relief reviews (2019) praise: Excellent customer service Personal stories of great savings Good communication about settlement offers and negotiation status Provides customers with confidence in the company and in themselves Fast, effective settlement process National Debt Relief complaints: Some communication gaps Length of the process Failure to communicate that forgiven debt is considered taxable income Complaints about low credit scores following services How involved will I be in the debt relief process? Though debt relief customers might be tempted to just hand over their financial reins to a debt management company, it is vital to be involved in the process from start to finish. Customers should seek not only to alleviate debt but also to nurture habits that lead to a debt-free life. When approaching a debt relief company, ask how much you can be involved in the relief process; this could be a good sign that you've found the right debt relief company. Freedom Debt Relief offers customer support and information for non-clients seven days a week. Additionally, customers can monitor their progress 24/7 through an online Client Dashboard. They can see which debts are being negotiated next and manage account information. National Debt Relief offers customer support for current clients Monday through Friday. Non-clients can reach the company Monday through Saturday. Does debt relief affect my credit? The goal of every debt relief or tax relief program is to help you get out of debt as quickly as possible. Depending on the condition of your credit, any debt relief program, including both Freedom Debt Relief and National Debt Relief, could negatively affect your credit. However, carrying a large amount of debt that is difficult to repay also negatively impacts your credit score. For example, debt from student loans can accumulate and increase over many years of nonpayment. So, you have two choices in such desperate situations: pay off your debt from student loans slowly, missing minimum payments and taking damage to your credit score or hire a debt relief company, settling the debt from your student loans faster while taking a hit to your credit score. While debt relief customers may experience an initial negative impact on their credit score, as debt as settled, they often see their credit score rebound. More importantly, credit scores and overall financial health improve in the long run. We recommend looking into debt relief programs if making smaller monthly payments and getting out of debt quickly is worth a temporary hit to your credit score. Freedom Debt Relief vs. National Debt Relief: Additional Services Both Freedom Debt Relief and National Debt Relief have debt consolidation options available, though customers are likely better off going to a company completely dedicated to debt consolidation. A debt consolidation loan company can help you consolidate all of your monthly payments into one low monthly payment. After debt consolidation, the company will attempt to negotiate lower interest rates with each of your creditors. One huge advantage to National Debt Relief is that the company offers a 100 percent satisfaction money-back guarantee. A money-back guarantee means that in the event you are unsatisfied with NDR's services or they cannot settle your debt, you can get your money back. Freedom Debt Relief does offer credit counseling (easier on your credit score) and additional DIY services for those who would like to get out of debt by themselves. The company also provides bankruptcy counseling. National Debt Relief offers bankruptcy counseling, debt consolidation services, and financial education resources. Freedom vs. National: Which is the best debt relief company? Freedom Debt Relief National Debt Relief Founded 2002 2009 Total Amount Resolved $10 billion $1 billion Total Clients Enrolled Over 600,000 Over 100,000 Minimum Enrolled Debt $7,500 $7,500 Locations 34 out of 50 states as well as 3 of the 6 U.S. island territories 41 out of 50 states Average Fee 20 percent of enrolled debt 18-25 percent of the enrolled debt Average Savings Undisclosed 30 percent of enrolled debt (after fees) Availability 7 days a week Monday through Saturday Debt is not a necessary evil that's just a part of life. You can conquer debt, and a debt relief company is a great way to start. Though National Debt Relief does have slightly lower average fees and provides debt relief services to more states, Freedom Debt Relief has greater customer satisfaction, more glowing debt relief reviews, better accessibility, and has been in business for a much longer time. The final decision is up to the customer, but there's a reason Freedom Debt Relief is ranked number one for debt relief programs on Best Company: over 10,300 positive reviews from satisfied customers resulting in 4.7/5 stars. So, if Freedom Debt Relief wins over National Debt Relief, how does it compare to some of the other companies in the industry? Freedom Debt Relief vs. CareOne Debt Relief Unlike Freedom Debt Relief and National Debt Relief, CareOne Debt Relief does not disclose its rates online. CareOne Debt Relief's main service is its debt management plan, so that may be why the company is unwilling to reveal pricing information about its debt settlement service. On the other hand, Freedom Debt Relief has years of experience with debt settlement services and has an average fee of 20 percent, an average in the industry. Looking strictly at debt settlement services, Freedom Debt Relief has more experience, likely better prices, and has thousands of positive reviews to back up its service. However, CareOne Debt Relief does have a 100 percent satisfaction guarantee. Freedom Debt Relief CareOne Debt Relief Founded 2002 2002 Satisfaction Guarantee No Yes Total Clients Enrolled Over 600,000 Undisclosed Minimum Enrolled Debt $7,500 $7,500 Locations 34 out of 50 states as well as 3 of the 6 U.S. island territories 50 states Average Fee 20 percent of enrolled debt Undisclosed Average Savings Undisclosed 50 percent (not including fees) Free Consultation Yes Yes Freedom Debt Relief vs. ClearOne Advantage ClearOne Advantage does not have as many good reviews as Freedom Debt Relief. With more than 60 reviews, Clearone has 3.8 out of 5 stars. Freedom Debt Relief has a 4.7-star rating with over 11,118 customers reviews, an impressive feat. Additionally, Freedom has more experience, is more transparent about pricing, and has resolved much more total debt than ClearOne Advantage. Freedom Debt Relief ClearOneAdvantage Founded 2002 2007 Total Amount Resolved $10 billion $1 billion Dedicated Consultant Yes Yes Minimum Enrolled Debt $7,500 $10,000 Locations 34 out of 50 states as well as 3 of the 6 U.S. island territories Undisclosed Average Fee 20 percent of enrolled debt Undisclosed Average Savings Undisclosed Undisclosed Availability 7 days a week Monday through Friday Freedom Debt Relief proves through its commitment to its customers, its transparency, and its experience in settling debts why it tops our list of best debt settlement companies. Customers are encouraged to compare Freedom Debt Relief to all of the top debt relief programs to ensure that it is the right company for their unique situation. Debt Relief Looking for debt relief options? Check out the top-rated companies and their offerings. Compare Top Companies
Your debt is overwhelming. You can no longer pay your bills and you are falling behind financially. Perhaps you receive weekly collection calls. You know there is no way for you to pay back your creditors, so you are seriously considering bankruptcy. However, before you start dialing an attorney, consider your other options, particularly debt settlement. What Is Bankruptcy? Bankruptcy is a legal procedure that reduces or eliminates debts. Eligible individuals receive court protection during the bankruptcy proceedings. Through the process, assets are either liquidated to pay off debts or the court creates a repayment plan to help the consumer pay off debts over time. There are two main types of consumer bankruptcy, Chapter 7 and 13. In 2016, approximately 62 percent of the 770,846 non-business bankruptcy filings were Chapter 7, making it the most popular type of filing. During Chapter 7 bankruptcy, your nonexempt assets are sold and used to pay creditors. After the process is complete, remaining qualified debts are discharged. Certain types of debt, such as tax and child support, are not applicable. On the other hand, during Chapter 13 bankruptcy the court works out a repayment plan, equal to the value of your nonexempt property. Once this is complete, remaining qualified debts are discharged. What Is Debt Settlement? Debt settlement is a very different process. A settlement company will analyze your debt and financial situation, often during a free consultation, and create a plan to help you get out of debt. Often, they will ask you to make monthly deposits into a designated savings account, rather than paying your creditors. The accumulating sum is used in the negotiation process. The debt settlement company negotiates with your creditors to settle your debt for a lower amount than you owe. Top 5 Things to Consider While deciding between bankruptcy and debt settlement, there are several important factors to consider. Both decisions have short-term negative consequences, but can be beneficial long term. Consider the following five things before you make your decision: Eligibility Credit Impact Resolution Time Cost Tax Consequences Eligibility The first critical factor is eligibility; not everyone qualifies for bankruptcy. Additionally, many debt settlement companies have minimum debt requirements. Before choosing your course of action, you need to determine if you qualify for either method. Bankruptcy: One important eligibility requirement for Chapter 7 bankruptcy is income. If your income is less than the median for your state and household size, you will likely qualify. In addition, your amount of disposable income is a large factor. If you have little income after taxes and necessary expenses, such as food, you may be eligible. Additionally, debt that exceeds half your income or would take over five years to pay off indicates that you are a good candidate for bankruptcy. Chapter 13 bankruptcy has different eligibility requirements. Your debt cannot exceed a certain amount, $394,725 for unsecured debts and $1,184,200 for secured debts. You also must have sufficient income to satisfy a repayment plan and be current on your federal income tax returns. Both types of bankruptcy have several additional strict requirements. If your debt was recently discharged in a prior bankruptcy case, dismissed from a case within the past 180 days, you have attempted to defraud your creditors, or you do not attend mandatory credit counseling, you will not qualify. Debt Settlement: Each debt settlement company establishes its own eligibility requirements. Most companies only work with unsecured debt. Additionally, few companies operate in all 50 states. You need to verify which companies service your state. Finally, most debt settlement companies have a minimum debt requirement. Many companies require $7,500 to $10,000 in debt. However there are some companies that require as little as $5,000. If you have less than $5,000, you should look seriously at other debt relief options, such as debt management plans or consolidation. Credit Impact Both bankruptcy and debt settlement will negatively impact your credit score and report. The severity and the length of the impact needs to be seriously considered. Your credit score affects your ability to apply for loans and may dissuade landlords from renting to you. It significantly impacts your interest rates on loans, credit cards, and mortgages. Moreover, if you apply for a job with security clearance or in a financial industry, your credit score may be an influential hiring factor. After either method, you may consider using a credit repair company to help monitor and improve your credit. Bankruptcy: Bankruptcy will greatly impact both your credit score and report. Your score could decrease by 160 to 220 points. Chapter 7 bankruptcy stays on your report for 10 years; however, your discharged debts are removed after seven years. On the other hand, Chapter 13 bankruptcy stays on your report for seven years. You pay off many of your debts over a three to five year period; these may remain on your report for longer than seven years. Debt Settlement: If your debts are settled for less than the full amount, your credit report may read "Settled" rather than "Paid in full". Additionally, part of the settlement process involves making payments to a designated savings account, rather than paying your creditors. These missed payments will decrease your score. If you are already late on your payments, the impact will be less severe; however, if you have a high score, the drop will be more dramatic. In either case, debt settlement is still less damaging to your credit than bankruptcy. Resolution Time Debt resolution is rarely a quick process. Compare the length of each option before making your final decision. Think about your future financials goals and how quickly you need your debt resolved. Bankruptcy: Bankruptcy can take a few months or years. Chapter 7 bankruptcy is the shortest option. It typically takes four to six months. In contrast, Chapter 13 bankruptcy takes between three and five years. Over these years, you make regular payments as outlined in your court-approved repayment plan. Debt Settlement: The settlement process varies greatly based on individual circumstances. Many companies, such as Accredited Debt Relief, aim to have their clients debt free in two to four years. However, speaking to a company about your specific situation will give you a more precise time estimate. Cost If you are considering these two options, then you are struggling with notable financial hardships. You want to choose the option that makes the most financial sense. Take time to calculate the cost and see which option is best for you. Bankruptcy: There are several costs associated with bankruptcy. Chapter 7 costs $335 in filing fees, and Chapter 13 costs $310. In addition, many people hire bankruptcy attorneys, with an average fee of $1,250. You do have the option to file without representation, called pro se. However, a study of 2014 Central District of California bankruptcy courts found that only 48.2 percent of pro se cases resulted in a bankruptcy discharge (released liability from debts) compared to 82.1 percent of attorney represented cases. Though legal representation offers a higher success rate, it dramatically increases costs. Finally, one of the conditions of bankruptcy is credit counseling. Depending on your income, this could range from $0 to $50. Debt Settlement: Companies typically charge a percent of your enrolled debt, though a few companies base fees on saved debt. Pacific Debt Inc. charges between 15 and 25 percent of total enrolled debt for their services, a typical fee for the industry. The range varies based on state and amount of debt. Be wary of companies that charge upfront fees. Tax Consequences Debt relief has surprising tax repercussions. Familiarize yourself with these consequences. You do not want to pay off your debt only to receive a hefty tax bill at the end of the year. Bankruptcy: Canceled debt, in both Chapter 7 and 13 bankruptcies is not included in your income. Unlike other forms of forgiven debt, this is not taxable. To report this exclusion, you will need to fill out line 1a on Form 982. Debt Settlement: When your debt is canceled, your creditor will report it to the IRS through Form 1099-C. The IRS views this forgiven debt as taxable income. Unless you can prove insolvency (your debts exceed your assets), you will be required to pay taxes on the forgiven amount. The Final Choice As you decide your course of action, be sure to consider the aforementioned factors. You first need to establish if you qualify for bankruptcy or debt settlement. Your credit score will be impacted less drastically with debt settlement. Also consider the time and cost. Chapter 13 and debt settlement will most likely take a few years, while Chapter 7 only lasts a few months. During Chapter 7, your assets will be liquidated. If you are interested in retaining your possessions, debt settlement or Chapter 13 may be better options. Finally, remember that debt settlement is often taxable; include this in your cost estimate as you weigh your options. If you decide to file for bankruptcy, be sure to find a reputable attorney. They can give you specific legal advice for your unique situation. If you decide to resolve your debts with a settlement company, compare top-rated companies. You can read reviews from real customers and compare companies at BestCompany.com.
E.E. Cummings once said, "I'm living so far beyond my income that we may almost be said to be living apart." When you are living beyond your means, your debt can easily take on a life of its own. Debt is an increasingly common part of life for many Americans. According to a study performed by the PEW Charitable Trusts, 8 in 10 Americans have debt (most commonly mortgages), and 7 in 10 say that debt is a "necessity in their lives."Debt can leave you feeling both overwhelmed and enslaved, especially since the average debt for a balance-carrying household is $16,048. There are many strategies and options for managing and paying off your debt. Depending on the severity of your debt, this can be an intimidating and discouraging process. Many companies offer debt consolidation and debt settlement services to help you manage your debt. While both services help manage debt, there are some important and distinct differences. What Is Debt Consolidation? Debt consolidation is the process of combining all your debt into one simple payment. It usually involves taking out a new personal loan or working with a respectable credit counseling agency. You still pay off all your debt, though usually under more favorable terms. Applicants who achieve lower interest rates may be able to pay off their debt more rapidly.Debt consolidation, if used properly, can help your credit score long term, if you pay off your debt consolidation loan in a timely manner. However, if you miss payments or close all of your accounts immediately after paying off your debt, your score could be negatively impacted. Is It Right for You? Debt consolidation is a great option if you have high-interest rates on your current debt. This is especially applicable to credit card debt. The average credit card APR in March 2017 was 15.59 percent. Companies such as Consolidated Credit offer an average APR of 6 to 10 percent.It may also be a good fit if you have high monthly payments. Debt consolidation allows you to achiever better repayment terms. A lower monthly payment makes it easier to stay on top of your debt and prevents you from accruing late payment penalties.Debt consolidation is usually best for individuals with good credit scores. A good credit score will allow you to receive the best possible interest rate if you take out a debt consolidation loan. A poor credit score may not provide more favorable terms than your current credit plan. Additionally, debt consolidation tends to have a less significant impact on your credit score than debt settlement. This is true with both consolidation loans and working with a credit counseling agency.Finally, debt consolidation is a great option if you have an abundance of monthly bills. Debt consolidation provides the ease of one monthly payment to one creditor. If you only have one creditor, then you may want to consider other options such as a debt management plan or debt settlement. What Is Debt Settlement? During debt settlement, a company negotiates with your creditors to settle your debt for less than the original amount. Typically you will pay money into an account and that account will be used to pay your creditors. Often you are encouraged to fund the account, rather than pay off your balance. The company will then use this money and your lack of payments to convince your creditor to settle your debt.Because you are paying less than the amount owed, there are usually more significant ramifications with debt settlement than debt consolidation. For example, your credit score and report are negatively impacted. According to the NFCC, your credit score could decrease by 65 to 125 points. After settlement, your debt is often marked as "Settled" or "Paid Settled" rather than "Paid in Full." This will show on your credit report for seven years. In addition, debt settlement has varying results. You can search for reputable companies who are ranked highly on sites such as BestCompany.com. Is It Right for You? If you cannot manage your debt through other alternatives, such as debt management programs or debt consolidation, debt settlement may be a good option. Top companies such as Pacific Debt Inc. recognize that debt settlement is not right for every circumstance. As a result, many debt settlement companies require a minimum debt amount, often over $7,500 or $10,000. If you have a smaller amount of debt, you may want to consider other options.Debt settlement allows you to pay off your debt through one monthly payment. According to Freedom Debt Relief, it also allows you to pay off your debt faster than making minimum payments.If you have a low credit score, debt settlement may be a good option. A low credit score may disqualify you from lower interest rate options. Debt settlement is also ideal if you are considering bankruptcy and have no means to pay off all of your debt. According to National Debt Relief, debt settlement programs tend to lower your credit score significantly less than bankruptcy, typically by half as many points. After debt settlement, with wise choices, you can rebuild your credit score. Choose the Option that Meets Your Needs There are many options for debt management. Remember to consider factors such as your credit score, the total amount of debt, and your present interest rates. Assess your individual circumstances to see if debt settlement or debt consolidation is right for you.
Where there are people in crisis, there will always be other people looking to take advantage—and the debt settlement industry is no exception. Unfortunately, it only take a few rotten apples to make the entire debt settlement industry as a whole look shady and foreboding, which poses a major problem to legitimate companies out there to help those in need. There is a short list of things to look for when a scam artist is posing as a legitimate debt consolidation company. Here are the things you should look for. Tall Upfront Fees The biggest indicator you're being scammed is the upfront fees. Scammers will try to get you to pay large sums upfront, claiming that it's for legal expenses or something of the like. Don't believe this. A lot of scammers will try to take as much money as they can upfront, then split before they pop up a few months later under a new name, address, and phone number. Lofty Promises or Guarantees A good rule of thumb is that if it sounds too good to be true, it probably is. A lot of scammers will try to lure you in claiming that they have access to a special government program or have a special/secret method to completely eliminate your debt. Occasionally, they'll claim to reduce your debt by some substantial number, such as 70 or 80 percent. Don't believe this. If the company is touting itself as a company that can promise you the moon, they definitely have something fishy going on. Move along. Pushy Reps and Scare Tactics If your debt settlement company has all the shrewd pushiness of a used car salesman, you'll want to turn away. They'll likely use words along the lines of "quick" and "painless," or they may also try to scare or intimidate you into thinking that if you don't sign now, you'll miss out on something. Don't believe this. The truth is, paying off debt is long and painful. There's no way around it. A proper debt settlement company will have professionals helping you through the arduous process of repairing your credit, but don't expect to crack open a cold one and relax in your chair while it happens. Real professionals won't try to scare you into signing with them; they'll help make you aware of your reality, and give you the cance to make an informed decision first. Jamming Communication One of the biggest red flags of all is if the debt settlement company tells you to stop paying your bills and sever communications with your creditors for whatever reason. Don't believe this. A legitimate debt settlement company will never tell you to do these things. No Accreditations There are actually organizations in the financial industry that serve as watchdogs over debt help companies. It's true! If a company has accreditations from one or more of these organizations, you can feel confident that they're more than likely legitimate. AFCC (American Fair Credit Council) BBB (Better Business Bureau) IAPDA (International Association of Professional Debt Arbitrators) Keep in mind that you shouldn't just believe the scammer if they say they're accredited with these organizations. It would be wise to visit these organizations' websites and look to see if the company's name is listed in their registry. If it is, that indicates a big thumbs up that the company is legitimate. Where Do I Go? Believe this: not only are there plenty of legitimate debt settlement providers out there, but there there are also a few trusty resources, like BestCompany.com, which ranks and reviews companies from best to worst. Currently, the top ranked companies in the debt settlement industry are Freedom Debt Relief and Pacific Debt Inc.
You need to get out of debt, so we've made it easy to find your best options. Debt settlement companies are designed to help those in dire financial situations negotiate or resolve debt with creditors. Once you've read this article, you'll know which debt settlement company is best suited to your unique financial situation. The fact is that there are so many debt settlement companies out there, that it can be difficult to find the perfect one. That's why we've been careful in selecting our top five most qualified debt settlement companies. How We Evaluate Debt Settlement Companies At BestCompany.com, we evaluate debt settlement companies on a set of carefully selected ranking criteria, which includes important qualities like a company's minimum debt requirement, national accreditations, associated account setup fees, and of course, price. For example, companies with a low minimum debt requirement (e.g. $5,000) tend to have higher scores that companies that require upward of $20,000 in minimum debt. Similarly, companies with few account setup fees, or that charge a lower service fee-a percentage of the total debt, paid to the company-below industry averages, also receive high marks. Top companies also provide their services to more states and have been accredited by the American Fair Credit Council (AFCC) and/or the International Association of Professional Debt Arbitrators (IAPDA). Each debt settlement provider is independently reviewed and ranked using the same set of standards, and companies that demonstrate consistent excellence across our ranking criteria earn top marks. To learn more about the specific considerations that go into our debt settlement ranking criteria, check out how we rank. After thoroughly investigating each debt settlement provider in the industry, we've identified five companies that stand out from the rest: #1 Freedom Debt Relief Since 2002, Freedom Debt Relief has been at the forefront of regulating the debt settlement industry. In 2010, the company helped establish rules with the FTC that protect consumers from predatory debt-settlement practices. Freedom Debt Relief is also a founding member of the American Fair Credit Council and a Platinum member of the International Association of Professional Debt Arbitrators. In 14 years of business, the company has settled more than $5 billion in consumer debt in approximately 24-48 months per case (though this is not a guarantee). What we like about Freedom Debt Relief We like Freedom Debt Relief's flexible customizable program, which allows clients to set their own repayment terms. Customers can choose both the amount and the frequency of their payments and can rest assured that absolutely no fees will be charged until after the debt settlement services have been rendered in full. We found Freedom Debt Relief's Savings Estimator to be especially useful to customers who might be hesitant to sign up for a free consultation. The Savings Estimator calculates total savings, length of the program, as well as the suggested monthly deposit. #2 Pacific Debt Inc. Coming in at second place is Pacific Debt Inc., which got its start in 2002 as a response to the growing consumer debt epidemic in America. Pacific Debt is an accredited member of the American Fair Credit Council and the IAPDA and provides a simple enrollment process along with a client care team to help customers navigate the early stages of debt settlement. Each customer is assigned a personal account manager, who provide monthly updates on the customer's progress, as well as negotiates with creditors to speed up the settlement process. What we like about Pacific Debt Inc. One of the reasons we awarded Pacific Debt our number two spot is how easy its enrollment process is. Pacific Debt does not require customers to have a certain credit score before doing business, meaning a wider range of people — even those whose debt problems have severely affected their credit — can apply for debt settlement services with Pacific Debt. We also like Pacific Debt's low service fee of 17-20%. Many debt settlement services charge between 21% and 24%. #3 SettleBankDebt.com Our third-ranked debt settlement company has impressed customers by offering a unique approach to those seeking financial freedom. Instead of encouraging customers to stop paying their debt in order to negotiate, the company only takes on customers that already have unsecured debt that is in collections or have been declared delinquent; this way, customers do not suffer any more penalties to their credit score than is necessary. SettleBankDebt.com has been in the debt relief business since 1996. But, how much does SettleBankDebt.com cost? The company only charges customers anywhere from 5% to 10% of their total enrolled debt. What we like about SettleBankDebt.com We are particularly impressed with SettleBankDebt.com's prices — 5% to 10% fees are practically unheard of in the industry. The downside to these amazing prices is that the company only takes on debt that has already been sent to collections. We love the fact that SettleBankDebt.com has taken a creative approach to tackle the problem of damaged credit scores within the debt settlement industry. Most debtors opt to pay and negotiate with creditors themselves through DIY programs or financial education resources. But for those who are being hounded by debt collectors and need debt help now, SettleBankDebt.com is a great option. #4 Accredited Debt Relief Accredited Debt Relief has been an industry leader in debt settlement services since its founding in 2008. Through its team of expert negotiators, Accredited Debt Relief has settled thousands of accounts for businesses and individuals alike. The company is also a staunch supporter of charity work and has donated to several prominent charities, including St. Jude's, the Wounded Warrior Project, and the Susan G. Komen Foundation. Accredited Debt Relief is aptly named, received accreditations from both the AFCC, IAPDA and the San Diego Regional Chamber of Commerce. What we like about Accredited Debt Relief Accredited Debt Relief service fees are among some of the lowest we've seen — as low as 15% in some cases. This demonstrates to us that Accredited Debt Relief is sensitive to the financially volatile situation many of its customers find themselves in. In that same vein, the company charges zero upfront account setup fees and has a minimum debt requirement of $7,500 (below the industry average). We appreciate the company's transparency with its "Proven Results" page, which details savings figures for some of its actual customers. #5 CuraDebt In one form or another, CuraDebt has been assisting individuals and small businesses resolve their debt since 1996-making it one of the most experienced debt settlement providers in the entire industry. CuraDebt has received a number of accreditations and accolades from third-party organizations, such as the AFCC, IAPDA, The Netcheck Commerce Bureau, and the U.S. Chamber of Commerce. What we like about CuraDebt Something that stands out to us about CuraDebt is its approach to the service fee. Rather than charging a range of percentages based on a number of variables, CuraDebt simplifies the process by charging a flat 20% fee on your total debt-which is still less than what some other companies charge. CuraDebt's minimum debt requirement of $5,000 is also the lowest in the industry, which drastically increases the number of people CuraDebt can assist. Be sure to review the full list of debt settlement companies we've reviewed. The Future of the Debt Settlement Industry While several steps have been taken to ensure fair and honest practices are being implemented and enforced throughout the industry, debt settlement, as a whole, has a long way to go toward improving its reputation. Many financial experts strongly discourage consumers from using debt settlement as a means to resolve their debt because of the effect it can have on their credit scores. Experts also cite that, at least in some cases, debt settlement can actually result in more debt plus an even poorer credit score. When it comes to financial services in general, the knowledge gap between the financial expert and the average consumer is still very high. In order for debt settlement to remain a serviceable industry, companies must do more to foster good customer relationships. One way to do this is to be more upfront about what the debt settlement process entails, its effects, and who should or shouldn't enroll. Many people don't know that debt settlement is only ideal for those who can resolve their debt quickly, but do not qualify for other options. Companies should maintain compliance with all FTC regulations, and avoid creating false expectations (e.g., duration of the program, total savings, total costs, etc.). As the debt settlement industry continues to grow and evolve, BestCompany.com will continue to provide consumers with the latest news on industry standards, company rankings, and other pertinent news surrounding the industry. Our goal is to empower consumers to make better decisions when it comes to debt settlement; when you choose a top debt settlement company through BestCompany.com, you can rest assured it has been thoroughly inspected and approved beforehand.
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