Freedom Debt Relief Offers Tips to Help Consumers Evaluate Legitimate Debt Relief Options

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Not all debt settlement companies created equal

Freedom Debt Relief

We want to ensure that regulations do not have the unintended consequences of driving the good companies – those that are dedicated to providing quality services to consumers – from the market.

As the Federal Trade Commission (FTC) actively works to understand, and regulate, the debt settlement industry, Freedom Debt Relief (FDR) reminds consumers that not all debt settlement companies are created equal.

FDR, which has worked in cooperation with the FTC over the past year, leads efforts in the debt settlement industry to assist and educate those federal and state agencies that have authority to regulate the sector. The company's CEO and general counsel have participated as panelists at an FTC forum on debt relief, and "commend the FTC for kick-starting the debate on the nature and scope of appropriate regulations for the debt relief services industry," according to CEO Andrew Housser.

"FDR shares the FTC's goal of advancing consumer protection," he continues. "We want to ensure that any regulations do not have the unintended consequences of driving the good companies – those that are dedicated to providing quality services to consumers – from the market."

Debt settlement can be helpful for many – not all – Americans who are facing unmanageable levels of personal debt, explains Housser. Consumers must understand their debt relief options to choose the best fit and avoid unethical business practices. To help consumers sort out the alternatives, he offers these tips:

1.    Work first to reduce debt. An individual's best resource is to handle debt reduction him/herself, because it protects credit scores. The keys, Housser said, are to stop using credit completely and to always pay secured debt, such as a mortgage or vehicle loan, first. Borrowers then should pay as much as possible on the debt that has the highest interest rate, while staying current with other debts by making minimum payments. When the first debt is repaid, consumers can use the same strategy on the next-highest-rate debt.

2.    Try direct negotiation. Those who cannot make even minimum payments on bills can try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans. "While creditors are under no obligation to negotiate, it is often in their interest to do so, since it makes payoff more likely," says Housser.

3.    Determine if debt settlement is right for you. Debt settlement is best suited for individuals who are carrying serious debt, who are struggling to make required minimum payments, and who would otherwise often be considering bankruptcy or credit counseling. A debt settlement firm works on consumers' behalf to lower principal balances due, often able to obtain savings of 50 percent of the total debt. Firms negotiate directly with the consumer's creditors while the consumer accumulates funds for the settlement, and charge consumers a fee for their services – typically a percentage of the debt enrolled or a percentage of the debt reduced.

Debt settlement programs help qualified clients fully resolve their debts, typically in two to four years. Programs typically provide better repayment terms than a Chapter 13 bankruptcy filing and do not leave a permanent bankruptcy judgment on one's record. If considering debt settlement, research firms carefully and make sure the company can spell out terms of the program clearly and in writing.

4.    Understand debt management and debt consolidation. Debt management companies, also known as credit counseling agencies, maintain prearranged agreements with credit card companies to lower interest rates on a consumer's existing debt to a creditor-issued "concession rate. These companies collect a monthly fee from consumers, as well as revenue from the credit card companies called "Fair Share" payments. Debt management plans reduce monthly payments, but not the principal amounts owed. They are best suited for individuals who are facing a less-severe financial hardship than a typical debt settlement customer.

Debt consolidation simply combines multiple debts into one larger loan. Debt consolidation services usually ask consumers to make one monthly payment, which is used to pay creditors. Consumers pay back 100 percent of the debt, plus interest. Additionally, the loan is usually secured by the borrower's property, such as a home or car. Consumers should beware of high fees, and check the service's reputation.

5.    Be cautious of bankruptcy. Bankruptcy more seriously impacts credit than other forms of debt relief, and is more difficult to obtain (and more expensive) than it used to be. Bankruptcy reform enacted in 2005 sharply curtailed filings for Chapter 7 bankruptcy, the type of bankruptcy that eliminates most consumer debt. Chapter 13 bankruptcy filings, which require consumers to repay debt on repayment plans, are available to those whom their state determines, through its means test, have enough income to pay back at least some of their debt. Repayment terms generally are less favorable than those found with debt settlement. Consumers considering a bankruptcy filing should speak to a bankruptcy attorney licensed in their state.

Today, individual Americans owe $2.5 trillion in consumer debt – excluding mortgage debt. The average American with a credit file is responsible for more than $10,000 in credit card debt. "Budgeting and lifestyle changes can help many individuals and families work their way out of debt, but for those who do need additional help, legitimate debt settlement often can be an option," says Housser.

Since settling its first account for clients in 2003, Housser's firm has settled more than 100,000 accounts for more than 80,000 clients, representing more than $563 million of consumer debt (based on amount owed at time of settlement). FDR's clients realize significant savings – in 2009, 58.4 percent of their settled debt (the total client debt balance at the time of settlement, before program fees). In other words, FDR clients in 2009 paid an average of just 41.6 percent of the total debt amount they owed at the time of settlement.

About Freedom Debt Relief (http://www.freedomdebtrelief.com)
Freedom Debt Relief provides consumer debt settlement services. Working for the consumer to negotiate with creditors and lower principal balances due, the company has served more than 80,000 clients since 2002. The company is a member of The Association of Settlement Companies, the International Association of Professional Debt Arbitrators and United States Organization for Bankruptcy Alternatives. FDR holds the Goldline Research Preferred Provider certification for excellence among debt settlement companies.

Freedom Debt Relief is a wholly owned subsidiary of Freedom Financial Network, LLC (FFN). Based in San Mateo, Calif., FFN also operates offices in Sacramento and Tempe, Ariz. The company, with 600 employees, was voted one of the best places to work in both the San Francisco Bay area and the Phoenix area in 2008 and 2009.

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Aimee Bennett
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