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Credit Counseling & Debt Management FAQs

Every year, American Financial Solutions receives calls from thousands of people with questions about how to change their financial lives for the better. Working with people on credit problems, budgeting, spending and savings, and comparing debt management as a better alternative to debt consolidation, we most often hear the following questions:

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Debt Management Plan FAQs

A Debt Management Plan consolidates all of your unsecured accounts into one monthly payment which is then sent to each of your program creditors. All of the accounts on the Debt Management Plan are closed or inactivated and a Debt Management Plan may impact your ability to open new types of credit while you're on the program.

Because a Debt Management Plan provides you the opportunity to repay your unsecured debts without taking on additional debt, many creditors are willing to provide benefits to help you pay off the debt and get back on track. Those benefits may include stopping late fees and/or over-the-limit fees, reducing or eliminating high interest rates and stopping collection calls or court proceedings.

Debt Management Plans typically last three to five years and can help you reestablish a consistent payment history.

Determining whether a Debt Management Plan (DMP) is right for you depends on your individual financial situation and goals. Here are some factors to consider:

  • Level of debt
  • Income & expenses
  • Interest rates
  • Desire to avoid bankruptcy
  • Commitment to repayment
  • Credit score impact

Before deciding on a DMP, it's advisable to consult with a reputable credit counseling organization, like American Financial Solutions, to assess your specific situation. They can provide personalized guidance on whether a DMP is the right choice for you

A Debt Management Plan (DMP) can have both positive and negative impacts on your credit score: 

Positive Impacts on Your Credit: 

-Consistent Payments: Making consistent payments through a DMP can demonstrate your commitment to repaying your debts, which can have a positive effect on your credit history. 
-Reduced Debt: As you make payments through the DMP, your overall debt load may decrease, which can positively affect your credit utilization ratio and improve your credit score over time. 

Negative Impacts on Your Credit: 

- Temporary Dip: Initially, enrolling in a DMP can lead to a temporary dip in your credit score. This is because creditors may close or restrict your credit accounts during the program. 
- Credit Note: Creditors may add a note to your credit report indicating that you are participating in a DMP. While this note itself does not affect your credit score, lenders may consider it when making lending decisions. 
- Difficulty Obtaining New Credit: Being on a DMP could make it more challenging to obtain new credit while you are enrolled in the program.

The cost of a Debt Management Plan (DMP) can vary depending on the organization you choose to work with. Here is a general overview of the typical costs associated with a DMP:
- Setup or enrollment fees
- Monthly maintenance fees

Some organizations offer fee waivers or reduced fees based on your income and financial circumstances. Before enrolling in a DMP, it's essential to review the fee structure with the credit counseling agency to understand the specific costs associated with their program.

Using credit cards while on a Debt Management Plan may not be feasible or advisable for accounts included in the DMP. It's crucial to follow the guidelines provided by your credit counselor and the terms of your DMP to successfully manage your debt and work towards becoming debt-free. 

If you have specific questions about using credit cards while on a DMP or need guidance on managing your finances during the program, it's advisable to consult with your credit counselor.

Credit Counseling FAQs

American Financial Solutions is a non-profit credit counseling and debt consolidation agency that offers various services to help individuals get out of debt. Here's how they can assist you:

1. Assessment of Financial Situation: American Financial Solutions starts by assessing your current financial situation. Their certified counselors will work with you to understand your debts, income, and expenses, helping you get a clear picture of your financial health. 

2. Debt Management Plan: They may create a personalized debt management plan for you. This plan typically involves negotiating with creditors to lower interest rates and monthly payments, making it easier for you to repay your debts. 

3. Financial Education: They offer financial education and counseling services to help you better manage your money. This includes budgeting advice and educational materials to improve your financial literacy.

As more and more Americans have slipped into financial difficulty, many companies have emerged to provide solutions. Unfortunately, many have also emerged to profit off of others' misfortunes. Working with a non-profit credit counseling agency assures you of two things. First, non-profit credit counseling agencies are now regulated closely by the Internal Revenue Service. This government oversight affects all aspects of how the agency works with clients and assures you a high level of integrity and competence. Second, non-profit credit counseling agencies provide most of their services for free. This makes them a tremendous resource for most clients who pay nothing for their help. To verify that a non-profit credit counseling agency is reputable and trustworthy, check for their membership in the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling and contact the Better Business Bureau.

To become a certified credit counselor for American Financial Solutions, we recommend you follow these steps:

  1. Education: While a college degree isn't always required, having a bachelor's degree in a related field can be beneficial and make you more competitive in the job market.
  2. Gain Experience: It's important to gain experience in financial counseling or related fields. This can include working in banking, finance, or customer service roles to build a strong foundation in financial knowledge and customer interactions.
  3. Certification: Earning a certification as a Credit Counselor is often necessary. Organizations like the National Association of Certified Credit Counselors (NACCC) offer certification programs. This typically involves completing an online course and passing a certification exam.
  4. A Will to Help: Credit counselors must be patient, resourceful, and empathetic. You have to have the desire to help those in need, and be an advocate for them in a time of their lives that's often stressful.

Contact us today to learn more about our credit counselors.

Debt Consolidation FAQs

Consolidation loans typically benefit people who have the ability to stop incurring more unsecured debt and want the convenience of one monthly payment. Unsecured consolidation loans typically have higher interest rates because there is nothing the creditor can take if the person fails to pay the loan as agreed.

Most banks prefer to lend secured consolidation loans. Qualifying for an unsecured consolidation loan, at an interest rate better than the current creditors, may be difficult unless you have good or excellent credit. Qualifying for an unsecured bank loan will also be difficult if you have any late, collections, or derogatory information on your credit report.

Finance companies may provide unsecured consolidation loans to people with less than perfect credit but it will come at the cost of a higher interest rate. Higher interest rates equal higher payments which may make a loan a poor choice for getting out of debt.

Debt settlement aims to reduce the total debt amount paid through negotiations, potentially impacting credit negatively but leading to quicker debt resolution. 

Debt consolidation combines debts into one manageable payment with lower interest rates, usually having a neutral or positive credit impact, but it may take longer and may be more expensive in the long run, to become debt-free.

The choice between these options depends on your financial situation, goals, and willingness to accept potential credit consequences.

Debt Settlement FAQs

In a settlement, the creditor agrees to accept partial repayment of the debt you owe them and stop further collection efforts. Unfortunately, if the amount you did not pay is over $600, the creditor must report the amount to the IRS or the creditor may sell the remaining portion to another collection agency. Amounts reported to the IRS may increase your tax liability and amounts sold to another collection agency may do further damage to your credit report.

If you are going to agree to a creditor settlement, make sure you request that the creditor mark the accounts as “paid in full” on your credit report and that the residual on the account is not sold or forwarded to another collection agency. Also make sure to have the creditor put the negotiation agreement in writing before making the payment.

These companies work with your creditors to try and reach a settlement agreement. The settlement company establishes a payment that you make each month directly to them. The payment goes into a savings account until the balance reaches an amount that the creditor will accept as a settlement.

While you are making payments to the debt settlement company, your creditors are not receiving any money. This means the creditor may send the account to collections (which will result in a negative mark on your credit report) or proceed with legal action. Legal action may result in a court judgment and wage garnishment. In addition, your credit report will be updated with late fees and other derogatory marks.

Before using any debt settlement or debt negotiation company, check them out with the Better Business Bureau.

Debt settlement aims to reduce the total debt amount paid through negotiations, potentially impacting credit negatively but leading to quicker debt resolution. 

Debt consolidation combines debts into one manageable payment with lower interest rates, usually having a neutral or positive credit impact, but it may take longer and may be more expensive in the long run, to become debt-free.

The choice between these options depends on your financial situation, goals, and willingness to accept potential credit consequences.

Consumer Credit FAQs

A good credit score typically falls within the range of 670 to 739. However, credit scoring models may vary slightly, and different lenders may have their own criteria for what they consider a "good" credit score. Here's a breakdown of general credit score ranges:

  • Exceptional Credit: 800 and above
  • Very Good Credit: 740-799
  • Good Credit: 670-739
  • Fair Credit: 580-669
  • Poor Credit: 579 and lower

Having a good credit score is important because it demonstrates your creditworthiness to lenders. With a good credit score, you are more likely to qualify for loans and credit cards with favorable terms, including lower interest rates. It can also make it easier to secure rental housing, utility services, and even certain jobs.

Improving your credit score is essential for better financial opportunities. Here are some proven strategies to help boost your credit score:

  • Pay Bills on Time
  • Reduce Credit Card Balances
  • Avoid applying for Too Much New Credit
  • Check Your Credit Report
  • Use Different Types of Credit
  • Seek Professional Help
  • Be Patient!

A credit report is a comprehensive record of an individual's financial history, particularly their credit-related activities. It contains information about your credit accounts, payment history, debts, and public records related to your financial behavior. Credit reports are compiled by credit bureaus, such as Equifax, Experian, and TransUnion, based on data provided by lenders, creditors, and public records.

Here's a brief list of things in your life that are directly impacted by your credit report:

  • Lending decisions
  • Credit approval
  • Interest rates
  • Employment
  • Renting property
  • Financial planning

You are entitled to one free copy of your credit report from each of the three major credit reporting bureaus once every 12 months. It's a good practice to review your credit reports regularly to check for errors or unauthorized activity.

You can request a copy of your credit report by following these steps: 

  • Online: Visit the official website to request your free credit reports. This site is authorized by federal law to provide free annual credit reports from the three major credit reporting bureaus: Equifax, Experian, and TransUnion. 
  • By Phone: You can also request your credit reports by calling the toll-free number (877) 322-8228. Follow the instructions provided during the call. 
  • By Mail: Download the Annual Credit Report Request form from the website, fill it out, and mail it to the address provided on the form. Your credit reports will be sent to you by mail within 15 days.

A secured credit card is ideal for those re-establishing credit. To get a Visa Secured card, you'll need to deposit money in a savings account or certificate of deposit (CD) in your name. Your money will earn interest, but it must remain in the account to serve as security for the card. This type of card is accepted for purchases everywhere that Visa credit cards are welcome, up to your deposited amount. You should contact your bank or credit union and find out if they issue secured credit cards. You can also apply for a secured card on line at Be sure to read the terms and conditions of the account carefully as these cards sometimes charge unexpected fees.

Most negative items can stay on your credit report for seven years from the date of the last activity on the account. Bankruptcies or judgments can remain on the report for 10 years. If your credit card account was a positive item (you paid on time and closed the account with a zero balance), it can remain on your report indefinitely.

If the item is negative and it is still on your report, it may be that you have made a payment on the account, told the collection agency that you do still owe the money, or it is a mistake. There are things you can do to extend the seven years something remains on your credit report. Making payments and, in some cases discussing the debt with the collector, can extend that time.

If it is a mistake, dispute the error through the credit reporting agency that provided you with the report.

Your credit card limit can be raised in two ways. First, if you make on time, steady payments and have excellent credit, the issuing bank may raise your credit limit without you even asking. The other option is for you to ask for a credit limit increase. The bank will look at your payment history, how much you owe, how long you have had the card, and your overall credit situation. A maxed out credit card is usually an indicator of credit problems and the bank may turn you down.

This is a situation where talking to a certified credit counselor can help you develop a plan to reduce the amount of debt you owe and work towards improving your credit.

Unfortunately, you are liable for the debt your mother accrued since you allowed her to use your credit cards. Unless you can come to an agreement with her to pay these back, you will have to make payment arrangements.

We encourage you to call and speak to one of our counselors who may be able to assist you with this. They will take a close look at your budget and try to work out a way for you to set up payments. If you simply ignore the problem, you run the risk of the creditors taking you to court, which could result in a judgment against you and garnishment of your pay.

Miscellaneous Financial FAQs

Refinancing, second mortgages and home equity lines of credit are methods people use to pay off their unsecured debt. A home can be used as collateral for a loan to pay off unsecured (credit card) debt. Repaying the loan may mean lower payments than credit cards because payments are spread out over 10-30 years. This process turns low priority (unsecured) debt into high priority debt and could result in someone losing their home.

This option is best for people who have the ability to stop incurring more unsecured debt and for people with good credit that qualifies them for a loan at a favorable interest rate.

The primary purpose of bankruptcy is to give a person who is unable to repay their debts a chance to start over financially. There are two (main) types of individual bankruptcy.

  • Under Chapter 7, debtors are sometimes required to turn certain property over to a court trustee. This is property, which they owned when they filed their bankruptcy petition, is sold, and the proceeds are used to pay the creditors. Any remaining balance owed to the creditor is then discharged.
  • In a Chapter 13 bankruptcy, people may keep their property but must commit to a court-ordered repayment plan for their debt. The repayment plans typically last three to five years. At the end of that time, any balance remaining is discharged.

Anyone considering bankruptcy is required by law to receive pre-bankruptcy credit counseling, which is offered by American Financial Solutions.  Learn more about our bankruptcy counseling service.