American Financial Solutions Explains What Debt Consolidation Really Means

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Non-Profit Credit Counseling Agency helps consumers understand their options for getting out of debt.

What is the best option for consumers to get out of debt for good? Consumers hear many terms and may not fully understand what they really mean. Debt Consolidation, for example, has become a catch all term for getting out of debt, and many people view it as a panacea for financial problems. In fact, the most common question American Financial Solutions credit counselors hear when answering the phone is “do you offer debt consolidation?”

The answer is that one of the options American Financial Solutions offers, which is called a debt management plan, is the consolidation of all unsecured debt payments into one convenient monthly payment. Some of the benefits that creditors might offer on this plan are reduced interest rates and fees and sometimes even a lower monthly payment.

Another term, debt settlement, is also often confused with debt consolidation, but they are quite different. Debt consolidation is actually the consolidation of all debt into one loan. The funding from the consolidation loan is used to pay off all existing debt and then one payment is made each month to the loan company. The problem with a debt consolidation loan as a solution is that most consumers who have considerable debt have trouble qualifying for a consolidation loan because of their high debt to income ratio and irregular payment history. Their credit score will reflect this. If they do get a loan, they will likely have to pay a very high interest rate.

Debt settlement is when a consumer offers to pay off a percentage of a debt to a creditor, who will then consider the debt settled. This is not the same as paid in full. The settlement will show up on your credit report and there may be tax implications on the portion you do not pay back. There are companies who offer debt settlement, however be very wary, as their promises are often too good to be true and you may end up in litigation with your creditors, have judgments placed against you and have your wages garnished. For more information on the action recently taken by the Federal Trade Commission to protect consumers against the predatory practices of some debt settlement companies, please visit:

About American Financial Solutions: American Financial Solutions is a 501 (C) 3 Non-Profit Credit Counseling Agency. Our certified credit counselors are here to help. If you have a lot of outstanding debt and are having trouble making your payments, their counselors can help answer your questions. Your counselor will be able to expand on this explanation of what debt consolidation is all about and help you review your financial situation and your options for getting out of debt. American Financial Solutions can be reached at (888) 202-2994 or visit the website at


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Barbara S. Mascarin
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