The Freedom Debt Relief Story

A Solution for an Unmet Consumer Need

Founded in 2002 by two Stanford Business School graduates, Freedom Debt Relief, a member of the Freedom Financial Network, has helped thousands of customers attain financial freedom through its innovative and industry-leading service.


The company's founders/co-CEO's, Andrew Housser and Brad Stroh, launched Freedom Debt Relief when - after years of working in private finance and investment - they became troubled by the lack of consumer-friendly debt relief options available to the average American consumer.


After extensively researching current debt relief models such as credit counseling, mortgage refinancing, and bankruptcy - the two designed an alternative to provide consumers a faster, more affordable debt relief program, creating a program that takes a compassionate, consumer-advocate approach that could resolve clients' debts in as little as 24-48 months.


FDR negotiates on behalf of indebted consumers who are experiencing a financial hardship with the goal of avoiding bankruptcy by settling their unsecured debt at a discount to the principal owed. For many consumers who cannot afford monthly payments and have significant (typically, greater than $10,000) high interest credit card debt or medical debt burdens, this is the only alternative outside of bankruptcy.


The average consumer of Freedom Debt Relief enters the debt resolution program with $30,000 in credit card debt spread over seven different unsecured accounts (this ranges broadly depending on the individual consumer situation). 80% of consumers are delinquent, or unable to make the next monthly minimum payments, at the point of initial consultation.


Before founding FDR, the founders performed extensive research into the credit card collection process and found that the traditional solutions available to consumers experiencing debt problems left a large segment of the population under-served. The primary solutions available to consumers were:


  1. Refinancing to take equity out of their home to pay off credit cards.
  2. Making minimum payments to creditors (typically 3% - 4% of balance per month, or $900 to $1,200 monthly on $30,000 of debt) while incurring very high interest rates.
  3. Enrolling in a Credit Counseling / Debt Management Program (2.0% - 2.5% of outstanding balance per month).
  4. Declaring Bankruptcy (Chapter 7 or 13).

FDR's research indicated that there is a large population of consumers that do not have any equity in their homes, and cannot afford either the minimum payments on their credit cards or the minimum payment required in a Credit Counseling program. Many of these consumers have the willingness to resolve their debts and the means to save some amount towards payments of their debts - however, because of the limited options available, they are faced with only one option that could work for them - filing bankruptcy.


Since FDR's founding, the population of Americans under-served by traditional solutions has increased dramatically. As of January 2009, the amount of outstanding credit card debt totaled roughly $1 trillion (compared to just $70.5 billion in 1982 – the last time unemployment rates approached those we are currently experiencing). Today, 90% of credit-card users revolve a balance (i.e., don't pay it off in full) at least once a year, and over 45% of credit-card users revolve every month. The situation will unfortunately get worse before it gets better. Unemployment rates, widely viewed as the most reliable indicator of consumers inability to service their debt, climbed to 10% in November 2009. economists expect the unemployment rate to remain around current levels for the rest of 2010.


Furthermore, after the Bankruptcy Reform Act of 2005 and the financial crisis of 2008/2009, the options for consumers significantly decreased (with both bankruptcy and mortgage refinance much harder to qualify for), at the same time that demand for debt resolution is higher than ever.


As a result of these macroeconomic and policy driven issues, the American consumer is in dire need of assistance in working out their debt. Now more than ever there is an urgent need for properly regulated and well run Debt Settlement companies. Debt Settlement companies serve the crucial role of a consumer friendly advocate. Debt Settlement companies allow overly indebted American consumers to deleverage while remaining a productive participant in the US economy and repaying as much as possible to the creditors.


Freedom Debt Relief

With the insight gathered from our research, FDR launched its first consumer service, Freedom Debt Relief. The FDR program is an innovative solution that allows consumers, who cannot otherwise afford to pay their bills, to save money toward a non-bankruptcy workout, or settlement, of their debts.


A core element of the FDR debt settlement program is educating the consumer regarding the importance of financial discipline and regular savings. Each month, a client deposits a fixed amount into a special purpose bank account established and owned by the client (FDR has no control over the client’s bank account and never touches the client’s funds). The client’s monthly deposit is typically 1.5% – 2.0% of the debt balance. As funds accumulate in this account, FDR negotiates with the client’s creditors to settle the debts at a reduced amount. After a negotiation with a creditor is finalized, the consumer is notified of a pending settlement; if the consumer approves of the terms, the consumer will then authorize a lump sum distribution from the special purpose bank account directly to the creditor, at which point that debt obligation is considered settled in full. This process is repeated for each of a client’s creditors until all debts have been settled. While a consumer could certainly negotiate settlements on their own, FDR’s core resolution processes, extensive creditor and collector relationships, and scalable technology platforms allow FDR to resolve clients’ unsecured debts in a far more cost-effective manner.


Underwriting: Right Consumer into the Right Program

From inception, FDR’s goal has been to create value for consumers by targeting the appropriate program at the right consumer. It is a fundamental thesis of FDR that a significant part of the problem with consumer finance is that consumers are typically “sold” a single point product, rather than consulted and then offered the product that is most appropriate for them. FDR’s founders witnessed this through their research in consumer bankruptcy, credit counseling, subprime mortgage and credit lending (very infrequently was consumer cash flow and probability of success factored into client enrollment).


With this in mind, FDR implemented a strict Underwriting function that screens all potential applicants to ensure that Debt Settlement is right for their individual situation. For this reason, only around 5% of consumers that contact FDR are enrolled into the FDR program. The majority of consumers that come to us are referred to another program (such as Credit Counseling, mortgage refinance or bankruptcy), depending on their particular situation.


Furthering the same goal, FDR has always fully disclosed both the costs and benefits of a Debt Settlement program to all of its potential clients. It is a fact that Debt Settlement is not right for everyone. It has potential negative repercussions for a consumer’s credit rating and the consumer is likely to receive collection calls as a result of not making minimum payments on their debts. Furthermore, creditors may hire collection agencies and, in certain cases, take legal action to pursue collection. These possibilities are often used by critics of the growing industry, who compare these negatives to the positive aspect of paying your debt in full. However, this criticism is frequently flawed – as consumers that are accepted into FDR’s program do not have the ability to continue making payments on their credit cards – it is not a choice they have available to them. Debt settlement provides them an alternative to bankruptcy, not an alternative to paying debts in full.




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