Money Health

Debt Settlement – A Proven Solution In The Quest For Financial Health

Debt Settlement - A Proven Solution
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At Freedom Debt Relief, we believe financial health should be obtainable for as many people as possible. Financially stressed consumers seeking financial health need effective tools to help them fulfill their dreams. We help consumers realize these goals by providing information to empower better financial decisions and solutions that best fit their particular financial situation. In the case of debt settlement, we embarked on a first-of-its-kind study to quantify what happens to our clients’ credit scores during and after the debt settlement process.

While the study presented in the last few blogs only scratches the surface, it does an excellent job illustrating the effectiveness of debt settlement. There are three key findings we want you to take away from our study:

  1. FICO® Score Recovery – We have observed how the FICO® Scores of FDR Graduates rehabilitate steadily as they progress through the debt settlement journey. This steady improvement occurs after a decline in their FICO® Score during the first six months of enrollment. What is even more powerful is that after graduation, the score continues to increase. At the time of graduation, only 24% of FDR Graduates had median FICO® Scores of 680 or greater; two years later, the number more than doubled to 49%.
  2. Reduced Debt Burden – The FICO® Score recovery observed moves in lock step with the settlement of debt over time. This ultimately leaves the consumer with a more manageable debt load at the end of the program. A median enrolled debt of $28,000 is observed for FDR Graduates as they begin the program. Compare that to $3,800 45 months after enrollment, and you can see the power of the program. The reduced debt burden is critical because this is a principal source of their financial distress. By reducing our client’s indebtedness, the consumer is better positioned to rebound and improve their financial health.
  3. Responsible Credit Behavior – The real magic of the program is that the behaviors reinforced in the debt settlement program continue to pay dividends for our clients long after their time in Freedom Debt Relief. After years in a debt settlement program, our clients have developed the financial muscle memory of regularly paying into a dedicated financial account. So, it is no wonder that two years after graduating from FDR that behavior translates to these consumers having lower delinquency rates and lower credit card utilization rates.

Payment history and indebtedness account for approximately 65% of the FICO® Score, so their improvement helps fuel a continued rehabilitation in their FICO® Score. Two years after graduation, many of these consumers have FICO® Scores above 680, which signifies a return to the financial mainstream. This return to the mainstream improves their financial health and provides them access to credit at more affordable rates.

Debt settlement isn’t a panacea; it is just one of the tools everyday Americans can employ to help them get back on track financially. We hope you found these results informative and exciting. Please come back and read more from our blogs. We look forward to sharing more of our journey with you in the future!

Freddie Huynh is Vice President of Data Optimization for Freedom Debt Relief where he is responsible for identifying new and better ways to use data to enhance their debt relief program. Previously, he spent 3.5 years at Freedom Financial Asset Management re-architecting the credit risk infrastructure to deliver some of the best returns within the marketplace lending industry. Freddie also spent 18+ years at FICO where he oversaw the development, maintenance, and analytic support for FICO® Scores and was the architect of FICO® Score 8 and FICO® Score 9. Also a financial writer and contributor, Freddie holds a B.A. in Mathematics from Claremont McKenna College and an M.S. in Operations Research from Stanford University.