Freedom Debt Relief LLC is a for-profit company that negotiates with creditors on behalf of people who owe unsecured debt

Freedom Debt Relief LLC is a debt settlement company based in San Diego, California. The company contacts your creditors — credit card companies, medical debt collectors, personal loan lenders — and attempts to negotiate a lower payoff amount. If a creditor agrees, you pay a lump sum that is less than what you originally owed, and the debt is considered settled.

The company does not lend you money, consolidate your loans, or work with the government. It is a private business that makes money by taking a percentage of the amount it saves you. For example, if you owe $10,000 and Freedom Debt Relief negotiates it down to $6,000, the company might take 15 to 25 percent of the $4,000 savings as its fee.

This is different from credit counseling (which teaches budgeting), bankruptcy (which is a legal process), and debt consolidation loans (which combine multiple debts into one new loan). Freedom Debt Relief focuses only on negotiating lower payoffs.

Key Takeaways

  • Freedom Debt Relief negotiates with creditors to settle unsecured debts like credit cards and medical bills for less than the full amount owed.
  • The company charges a fee based on how much money it saves you, typically 15 to 25 percent of the negotiated savings.
  • Debt settlement damages your credit score in the short term because accounts go unpaid while negotiations happen, usually taking 24 to 48 months.
  • The IRS may count forgiven debt as taxable income, meaning you could owe taxes on the amount your creditor wrote off.
  • Creditors are not required to negotiate and may instead sue you, garnish wages, or report the debt to collection agencies.

How the debt settlement process works with Freedom Debt Relief

When you sign up, you provide information about your debts and creditors. Freedom Debt Relief then contacts each creditor to propose a settlement — usually offering to pay 40 to 60 percent of what you owe if the creditor forgives the rest.

While negotiations happen, you stop making regular payments to your creditors. Instead, you deposit money into a dedicated savings account that Freedom Debt Relief manages. This account holds the funds until enough has accumulated to make a settlement offer that creditors will accept. The process typically takes two to four years, though some debts settle faster.

Once a creditor agrees to a settlement, you authorize Freedom Debt Relief to pay them from your account. The company then takes its fee from the savings. After the payment, that debt is closed and marked as settled on your credit report.

What happens to your credit score during settlement

Your credit score will drop significantly once you stop making payments to your creditors. The drop happens within 30 to 60 days of the first missed payment and can be 100 to 200 points or more, depending on your starting score and credit history.

Late payments remain on your credit report for seven years from the original missed payment date. Even after a debt is settled, the account will show as "settled" rather than "paid in full," which lenders view less favorably than a clean payment history. Your score will gradually recover over time, but rebuilding takes years.

Some people use debt settlement when their credit is already damaged — for example, if accounts are already in collections. In that situation, settlement may prevent further damage. Others with good credit may find the credit impact too steep and choose other options instead.

Fees and what they cover

Freedom Debt Relief charges a percentage of the amount saved, not a flat fee. If the company saves you $4,000, you pay a percentage of that $4,000. The company publishes that its fees range from 15 to 25 percent of savings, though the exact percentage depends on your situation and the debts involved.

You do not pay the fee upfront. Instead, the company deducts it from your settlement account after each debt is settled. This means you only pay if Freedom Debt Relief actually negotiates a settlement — if no settlement happens, you owe no fee.

The company also charges a monthly account maintenance fee (typically $25 to $50 per month) to manage your savings account. This fee is separate from the settlement fee and is charged whether or not a settlement occurs.

Tax consequences of settled debt

When a creditor forgives debt, the IRS may treat the forgiven amount as taxable income to you. For example, if you owe $10,000 and settle for $6,000, the $4,000 difference might be reported to the IRS on a Form 1099-C (Cancellation of Debt).

You would then owe income tax on that $4,000 in the year the debt was forgiven, as if you had earned it as income. The tax owed depends on your tax bracket. A person in the 22 percent tax bracket owing $4,000 in forgiven debt would owe roughly $880 in federal income tax.

There are some exceptions — for example, if you are insolvent (your debts exceed your assets), you may not owe tax on forgiven debt. But in most cases, you should plan for a tax bill and discuss this with a tax professional before entering into a settlement agreement.

Risks and what can go wrong

Creditors are not required to negotiate or accept a settlement offer. While Freedom Debt Relief has relationships with many creditors, some may refuse to settle and instead sue you for the full amount owed. If a creditor wins a lawsuit, they can garnish your wages or place a lien on your property.

During the settlement process, creditors may continue to call and send collection notices. Some may report the unpaid debt to credit bureaus, further damaging your score. You may also face calls from debt collectors who have purchased your account from the original creditor.

If you cannot keep up with deposits to your settlement account, the process stalls and no debts get settled. You are still responsible for the original debts, and creditors may pursue collection action. Additionally, if you miss a payment to Freedom Debt Relief's account, the company may close your account and stop negotiating on your behalf.

Alternatives to debt settlement

If debt settlement does not fit your situation, other options exist. Debt consolidation combines multiple debts into a single loan with one monthly payment, usually at a lower interest rate. Your credit takes a temporary hit when you explore, but you continue making regular payments, which is better for your credit than stopping payments.

Credit counseling through a nonprofit agency teaches budgeting and may help you create a debt management plan where you pay creditors directly (but at reduced interest rates). This does not damage your credit as severely as settlement.

Bankruptcy is a legal process that can eliminate or reorganize debt, but it stays on your credit report for 7 to 10 years and has serious long-term consequences. It is a last resort when other options are not viable.

Some people negotiate directly with creditors without hiring a company, though creditors are more likely to take calls from a third party. Others straightforward pay down debt over time using the snowball or avalanche method — focusing on one debt at a time while making minimum payments on others.

Regulatory oversight and complaints

Freedom Debt Relief is regulated by the Federal Trade Commission (FTC) and state attorneys general. The company must disclose its fees upfront and cannot charge fees before settling a debt — a rule enforced by the FTC's Telemarketing Sales Rule.

The company has faced complaints and legal action over the years. The Consumer Financial Protection Bureau (CFPB) and state regulators have investigated debt settlement companies broadly for misleading marketing and failure to deliver promised results. Before working with any debt settlement company, you can search the FTC's complaint database and your state attorney general's office for any history of complaints.

Frequently Asked Questions

Can Freedom Debt Relief remove negative marks from my credit report?

No. The company negotiates lower payoffs but cannot remove accurate negative information from your credit report. Late payments and settled accounts will remain on your report for seven years. Some companies falsely claim they can remove accurate negative marks — that is illegal.

What if a creditor sues me while I am working with Freedom Debt Relief?

If a creditor files a lawsuit, you should notify Freedom Debt Relief when ready and consider consulting a lawyer. A judgment against you can lead to wage garnishment or a lien on your property. The company may accelerate settlement negotiations, but it cannot stop a lawsuit on your behalf.

Do I have to use Freedom Debt Relief, or can I negotiate with creditors myself?

You can negotiate directly with creditors without hiring a company. Many creditors will discuss settlement, though they may be more willing to negotiate with a third party. Negotiating yourself saves you the company's fee but requires time and knowledge of debt law.

How long does it take to settle all my debts?

Most people work with Freedom Debt Relief for two to four years before all debts are settled. The timeline depends on how much you can deposit into your account each month, how many debts you have, and how willing creditors are to negotiate. Some debts may settle in months; others may take years.

Will Freedom Debt Relief contact my employer or family members?

The company should not contact your employer. It can contact you and your creditors. If a debt goes to a collection agency, that agency may contact family members, though they cannot disclose details of your debt. Check your state's debt collection laws for specific rules about who collectors can contact.