Reduced Debt Burden — The Proof is in the Pudding
- Reducing debt is key to long-term financial health.
- Some people have too much debt to pay off without help.
- Debt relief programs are proven to reduce debt loads to healthy levels.
Debt load as a key component of financial health
When it comes to financial health, there is something even more foundational than credit scores: indebtedness. In fact, indebtedness is the second most important category within FICO® Scores, accounting for approximately 30% of the score. Additionally, some organizations such as the Financial Health Network, list debt load as a key component of financial health1.
FDR graduate’s debt burden has been substantially reduced
We previously shared results regarding FICO® Score migration while in the program. Here’s a related but augmented view. As the FDR debt settlement program progresses, FDR Graduates experienced a reliable and consistent reduction in the amount of unsecured debt owed2. The blue columns in Figure 1 below illustrate how settling and resolving outstanding accounts not only drove the overall debt burden down during the program, but also improved FICO® Scores, represented by the gray line. At the time of enrollment, the median unsettled balance was $28,000. Forty-five months later, that amount dropped to $3,800.
Figure 1 — Median FICO® Score and Debt Reduction Over Time For FDR Graduates
There are two ways to look at the graph above. A glass-half-empty person may look at the chart above and comment that it is unremarkable because it just illustrates that the business is doing what it is supposed to be doing. From my perspective, it’s powerful for a business to demonstrate that it can deliver positive results to its customers.
The whipped cream on this ice cream sundae is that our clients are empowered in this transaction: within the debt settlement program, debt can only be settled if the consumer agrees to it. The cherry on top is the fact that Freedom Debt Relief will only be compensated once the debt is settled. Wouldn’t you rather work with a business where you only had to pay them if they delivered what they said they would and you would have control over whether to accept that delivery?
The critical fact to draw from the chart above is that the graduate’s debt burden has been substantially reduced through the program. Consumers with too much debt often end up going delinquent on their credit accounts. Once delinquencies happen, fees and higher interest start kicking in, and debt loads increase. Rather than making the consumer’s problem harder to solve by providing more credit at higher rates, debt settlement can provide a financially distressed consumer with a path off this vicious cycle. In the next post, I’ll go into greater detail about how debt settlement positions the consumer for longer term success.
1. Center for Financial Services Innovation (now known as the Financial Health Network). Eight Ways to Measure Financial Health, May 2016.
2. The analysis presented is based off of a retrospective analysis of Freedom Debt Relief Graduates who enrolled from March 2014 through May 2014. Data was procured from a Credit Reporting Agency to facilitate the study. The results presented do not represent a guarantee of what will happen to a client’s credit score and enrolled debt, but rather a backward looking observation of what has happened to our clients’ credit scores and enrolled debt over time.