As the nation’s economy has declined, Americans are feeling the pinch, with an average of more than $16,000 in debt per person among those who have a credit profile. Freedom Debt Relief co-founder and co-CEO Brad Stroh reminds those who are facing serious debt hardship that they do have options when it comes to getting help.
“If you have distress paying the bills, are receiving calls from collectors, are struggling to pay off bills from a medical episode or an accident, or are starting to believe you might be better off not opening the mail, you are in too deep,” said Stroh, whose company has resolved debts for more than 50,000 clients over the past six years. “It’s time to re-assess — and the excellent news is, you can get help without resorting to bankruptcy.”
Debt Resolution firms, such as Freedom Debt Relief (FDR), negotiate on the consumer’s behalf with creditors. They settle on a lower amount that typically can reduce a consumer’s principal balance due — rather than just interest rates — and lower total payments by 40 percent to 60 percent with a repayment term of two or three years. Credit scores may be negatively impacted, but responsible credit use after completing a debt resolution program can rebuild credit relatively quickly.
Debt Consolidation rolls multiple debts into one loan or into a mortgage. It may or may not bring lower payments. Borrowers using a mortgage to consolidate place their homes at risk and might run up just as much credit card debt within a few years. Those considering debt consolidation must make sure they can afford the resulting payment. Those considering using a mortgage for consolidation must make sure that they are not putting their homes at risk of foreclosure.
Credit Counseling provides lower interest rates, with a repayment term of five to 10 years. Total debt principal is not reduced. Many credit counseling firms operate with creditor funding, so the debt management plans made for consumers may be more in line with interests of the creditors. In addition, credit profiles can prevent access to credit while a consumer is in a program, as many lenders view debt management plans similarly to bankruptcy.
Bankruptcy is a less-viable option for most consumers today, following the reforms of several years ago. Those changes included the institution of a “means test” to determine eligibility for Chapter 7 protection, which eliminates most consumer debt. Those whom the law deems to have enough income (as defined by each state’s median household income) to re¬pay at least a part of their debt cannot obtain Chapter 7 protection. Chapter 13 filings – which re¬quire consumers to repay debt on a repayment plot – are still available, but generally offer less-favorable terms than found in debt resolution, and result in a significant black mark on a credit report.
Questions to question a debt partner
People who are looking for a trustworthy organization to help win the battle against debt can question Stroh’s seven questions to choose a reputable firm:
1. Compensation: Does the company get any form of consideration or compensation from the creditors themselves? Some firms receive funding in the form of what are called “honest share” payments from creditors. The payments are incentives to get consumers into debt management plans (DMPs), and could lead to a conflict of interest between creditors’ and consumers’ interests.
2. Professional memberships: Is the company a member of its industry associations, or does it hold itself to a quality standard verifiable by third-party accreditation? A “yes” answer means the company is willing to have its practices scrutinized and to respond to consumer complaints.
3. Individualization: Does the company provide actual consultations and provide advice/education to consumers free of charge? Or is the company simply directing every consumer into a debt management plot?
4. Free education: Does the company provide educational material, including budgeting and financial advice, free of charge? Many firms consider educational material an additional fee source, not a benefit to their clients.
5. Background: What is the background of the company’s management team? Look for excellent, relevant education and experience — not a team that jumps from opportunity to opportunity to make its fortunes.
6. History: How long has the company been in business?
7. Success: What are the company’s dropout and success rates? Request these statistics. Leading credit card companies report that many credit-counseling firms have dropout rates as high as 90 percent.
About Freedom Financial Network (www.freedomdebtrelief.com)
Based in San Mateo, Calif., Freedom Financial Network, LLC (www.freedomfinancialnetwork.com) provides consumer debt resolution services through its Freedom Debt Relief and Freedom Tax Relief divisions. The company works for the consumer, negotiating with creditors to lower principal balances due that can often result in savings of up to half the amount owed.
Freedom Debt Relief (FDR) has served more than 50,000 clients since 2002 and currently has 28,000 clients working with the company to resolve their debt challenges. In the past month alone, the company resolved more than 3,500 cases for its clients, representing accounts worth more than $20 million. On average, FDR settles cases on behalf of its clients for 47 percent of the outstanding balance — a savings of 53 percent.
Company co-founders and co-CEOs Andrew Housser and Brad Stroh were named to the Silicon Valley/San Jose Business Journal’s “40 Under 40″ list in 2008, and are recipients of the Northern California Ernst & Young 2008 Entrepreneur of the Year Award. The company, with 475 employees, was voted one of the best places to work in both the San Francisco Bay Area and in Phoenix, home of a satellite office.
