Debt relief programs often cause significant, long-term damage to credit scores, incur high fees, and offer no guarantee of success, potentially leaving consumers with more debt and tax liabilities on forgiven amounts. They require stopping payments to creditors, leading to potential lawsuits, while debt settlement specifically can mark accounts as "settled" for up to seven years.
Cons:
First Advantage pretends to be a debt relief company, but it's not. When you read the fine print, you'll see that it gathers your information and sells it to third-party providers, some of which may offer debt settlement services, consolidation loans or other financial products.
Completion rates vary between companies depending upon a number of factors, including client qualification requirements, quality of client services and the ability to meet client expectations regarding final settlement of their debts. Completion rates range from 35% to 60%, with the average around 45% to 50%.
Debt Relief Order (DRO) disadvantages include severe credit score damage for up to six years, making future borrowing difficult, restrictions on certain activities like acting as a company director, potential tax on forgiven debt, and the possibility that improved finances could disqualify you, leaving you responsible for the debt. You also must meet strict income/asset criteria, and any debts missed during the DRO process remain your responsibility.
Both offer a debt settlement program where they negotiate with creditors to reduce the amount owed by clients. However, National Debt Relief is often known for its more personalized approach to customer service, while Freedom Debt Relief operates on a larger scale with a more structured, standardized program.
Freedom Debt Relief's cons include potential credit score damage, high fees (15-25% of enrolled debt), the risk of lawsuits from creditors, and that forgiven debt can become taxable income, plus the process can be slow and isn't guaranteed to work for all debts, with no upfront fee requirement for reputable companies being a key sign of legitimacy.
However, if you're not behind on payments and your credit score may qualify you for a lower rate, debt consolidation is likely the safer, smarter move. Not only will you be able to streamline the debt payoff process, but you also save on interest and protect your credit.
Bankruptcy is your best option for getting rid of debt without paying.
The "777 rule" in debt collection, also known as the 7-in-7 rule, is a CFPB regulation (Regulation F) limiting calls: collectors can't call more than 7 times in 7 days for a specific debt, nor call within 7 days of a conversation about that debt. It aims to prevent harassment, applying to calls, texts, and emails, though exceptions exist, and the presumption of compliance can be rebutted by aggressive call patterns like rapid succession or highly concentrated calls.
Because you'll be encouraged to stop making payments to creditors, using a debt relief company could negatively impact your credit. Your FICO score could drop by more than 100 points, according to the CFPB.
Credit bureaus track debt settlement for seven years because it signals potential risk to future lenders.
Overwhelmed with lots of debt in lots of places? The pros of a debt consolidation loan: It could be simpler to manage your money – you'll have just one monthly payment. You'll pay the same amount each month – the interest rate is fixed, so it won't change.
The 2-2-2 credit rule is a guideline for building strong credit, suggesting you should have two active credit accounts (like cards or loans) for at least two years, with consistent on-time payments for those two years, often with a minimum credit limit of $2,000 per account, to demonstrate financial responsibility to lenders, especially for mortgages. It's a benchmark to show you can handle credit well over time, reducing lender risk and improving approval odds for major loans.
The 11-word phrase often cited to stop debt collectors is "Please cease and desist all calls and contact with me, immediately," which leverages your rights under the Fair Debt Collection Practices Act (FDCPA) to halt most communication, though it must be sent in writing via certified mail to be legally binding, and collectors can still notify you of lawsuits.
Tips for Getting Out of Debt When You're Living Paycheck to Paycheck