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What does debt consolidation really mean?

When someone searches for debt consolidation on the internet, they are generally looking for a way to get out of debt. Debt Consolidation actually describes consolidating all of your unsecured debt into one loan at a single interest rate so that you will pay only one payment a month to one company. The question is – is this a good option for most consumers who are weighed down by a lot of debt? These very people tend to have a high debt to income ratio, may be behind in making their payments and so will tend to have a low credit score. This does not stand them in good staid for qualifying for a debt consolidation loan at a reasonable interest rate, if at all. Many consumers, mistake a debt management plan for debt consolidation. Debt management is often a good solution for consumers who are in debt because it is not a loan but a consolidation of debt payments into one payment per month with the assistance of a credit counseling agency. In addition creditors normally give benefits to those who enroll in a debt management plan. These benefits may include lower interest rates, lower fees and, in some cases, a lower monthly payment. Debt management plan enrollees will be out of debt in five years or less. Therefore, when consumers contact us and ask if we provide debt consolidation, we spend a few minutes explaining to them what that really means and what solutions we can provide.

American Financial Solutions is a non-profit organization that has helped thousands of Americans find relief from financial trouble, pay off their debt and realize their financial goals. One of the most important things we can offer consumers is the education necessary to change how they manage their money. Also, when someone is on a debt management plan, they will have a counselor to rely on for support and encouragement, something you do not get with a debt consolidation loan. We have found that this support is extremely valuable and is one of the reasons for success.

People sometimes confuse debt consolidation for debt settlement and are drawn to the provocative advertising that promises to get them out of debt in a very short period of time while paying less than the balance owed – sometimes as much as 50% less. Be wary of such claims! If you do contact one of these companies, be sure they explain, in detail, how this debt consolidation process works, that it could result in litigation against you by your creditors and how your credit will be affected. At American Financial Solutions you will find, certified credit counselors who will confidentially review your entire financial situation and discuss options to help you reach your financial goals. They will explain the differences between debt consolidation, debt management and debt settlement in a way that is easy to understand. Please contact our professional counselors using the number listed on our website page. We are available from 6 a.m. to 7 p.m. Monday to Friday and 7 a.m. – 3.30 p.m. Saturday PST, or complete our online application form by pressing the “Get Started Now” button.

Published Feb 21, 2011.