Credit card companies wrote off $51.1 billion of debt in 2002, which means business is good for Freedom Debt Relief, a San Mateo startup that provides debt settlement services.
Debt settlement can be different from traditional credit counseling. Many credit counseling services have landed in legal hot water over their funding from credit-card companies and accusations that they focus on securing the largest possible payment for the card issuer. Freedom Debt Relief says its focus is solely on reducing the amount the cardholder owes.
"A problem we've had to overcome is that the regulatory and legal issues of credit counseling are clouding the larger debt-management umbrella," co-founder Andrew Housser said. "We're not marketing ourselves as a nonprofit. We are paid by the consumer based on our success."
Housser and his partner, Brad Stroh, studied the industry and decided no prior entrant to the new debt settlement niche was doing it right. They opened their own shop in late 2002, and have used revenue to fund growth.
"We're already one of the biggest companies in the industry. And we're doing well," Stroh said.
Freedom Debt Relief works with clients -- who on average have over five credit cards and $30,000 in unsecured debt -- to understand their financial needs and problems, and determine a budget. Clients make monthly deposits into escrow accounts in their own names. Freedom Debt Relief, meanwhile, negotiates a smaller amount for them to pay, usually less then 40 percent of their total debt. The company's fees are a percentage of what customers save. Those who abide by the program are debt-free within 30 months.
Creditors prefer traditional credit counseling, which often secures them all they are owed, plus interest. But with the amount they write off steadily increasing, 30 cents on the dollar has attractions.
Housser and Stroh have even won converts from within credit counseling.
"In the credit counseling world, where a lot of mom and pop shops sprung up of people who thought they could make a quick buck, these former Stanford guys (Housser and Stroh) are very impressive," said Doug Nunes, former CEO and president of AmeriDebt, one of the largest credit counseling companies, and a new adviser to Freedom Debt Relief.
"They spent a lot of time looking at the pitfalls of credit counseling," Nunes said. Even more importantly, they have worked to understand how the credit card companies work, which makes them more effective negotiators.
Freedom Debt Relief also works closely with customers, which is one reason their dropout rate is very low, even among their clients who previously failed at credit counseling.
Though they want to keep operations lean, they expect to double their staff by year end no matter how the economy does.
"Bankruptcy filings, boom or bust, continue to grow," Housser said.
"We're such a debt-embracing culture," Stroh added. "Unfortunately, it's not difficult to find someone with debt problems."
Sarah Duxbury is a staff
writer for the San Francisco Business Times.
here to go to Freedom Debt Relief's website