North Carolinians, like millions of Americans across the country, have been saddled with an ever-growing amount of debt over the past decade. These debts, in the form of student loans, auto loans, medical bills, and credit card balances, combine to put consumers at risk when there are sustained shocks to the economy.
Since March of last year, COVID-19 has inflicted financial pain on many North Carolinians and resulted in nearly 3.2 million unemployment claims being processed in the Tarheel State. Among the middle class, many are burdened with a heavier load of unsecured debt due to lost jobs, reduced wages, and unexpected medical costs. When a family’s bills become unsustainable, and it seems like there is nowhere left to turn, they deserve – and desperately need – access to debt relief options. One of those options – debt settlement – is currently under attack by lawmakers in Raleigh.
The debt settlement process delivers results by putting the consumer first. Companies like Freedom Debt Relief advocate on behalf of consumers – all of whom are facing some kind of hardship – and negotiate financial settlements with their creditors in order to resolve those obligations for less than they originally owed. This solution has worked to save money for millions of Americans. Freedom Debt Relief’s debt settlement program alone has helped more than 700,000 families struggling through financial difficulties and has settled more than $13 billion of their unsecured debt burdens. Across North Carolina, in just the past five years our company has helped more than 25,500 consumers in financial hardship save almost $100 million.
Lawmakers heard from thousands of those North Carolinian debt settlement clients in the past year who provided heartfelt, personal stories about the positive impact of debt settlement on their financial situations. Despite these powerful testimonials, some lawmakers continue to push legislation that would effectively eliminate this critical service from the state. To be clear, if the proposed legislation (known as HB 76) is permitted to become law, more than ten thousand North Carolinians will immediately lose access to the debt settlement programs in which they are currently enrolled and many more will lose access to this critical option for addressing unmanageable debt in the future. This change would inevitably trigger a tidal wave of personal bankruptcies across the state.
Unfortunately, several misconceptions exist regarding debt settlement. One common mischaracterization is that entering a debt settlement program leaves an indelible mark on a consumer’s credit score. That’s simply not true. Although consumers’ credit scores typically dip when they first entered a program, as one would expect since they are in financial hardship, their scores show marked improvement the longer they stayed with us and, 45 months after enrollment, the median FICO score for program graduates returns to the same level as at their time of enrollment. Compared to bankruptcy – the only real alternative to debt settlement – this is a significantly better outcome.
Another oft-repeated inaccurate claim is that debt settlement clients are, nearly universally, forced into bankruptcy. Again, this is objectively false. The overwhelming majority of debt settlement clients leave programs more financially secure than when they started. A recent longitudinal credit study, reviewed by a credit reporting agency, showed that debt settlement clients who completed the program exhibited a wide range of responsible credit behaviors including lower credit card utilizations, lower future delinquencies, and dramatically reduced outstanding unsecured debt loads.
If HB 76 is allowed to pass, it will close off a critical tool to help financially distressed consumers in the state. By eliminating debt settlement as an option for consumer financial relief, lawmakers will make the dire financial situation caused by COVID-19 even worse for many individuals in the state. Knowing this fact, we urge North Carolina’s lawmakers to listen to the thousands of current North Carolinian debt settlement clients who have reached out to them and delivered a clear message: reject HB 76 so struggling consumers will continue to have access to all their options as they work to regain control of their finances and lives.