Settle or Consolidate Your Debt? JKB Financial, Inc. Knows the Best

America isn’t a stranger to debt: the average household has about $15,000 in credit card debt, and the country itself has a total consumer debt of approximately $11.3 trillion. As such, plenty of people turn to companies like JKB Financial, Inc. (doing business as American Debt Solutions) to help them find attorneys and other companies who can help get rid of their debt. There are plenty of ways to do this, though two of the most common are debt settlement and debt consolidation. While these debt relief plans are preferred by most people, both have certain pros, as well as cons that limit their usefulness. Here’s a quick overview on how they do and don’t work:

What is debt settlement?

This process is essentially an agreement between the debtor and the creditors: in exchange for a lump sum payment, the creditors will consider a debt owed to them as paid. With that, debt settlement is a lot more complicated than it sounds because the debtor has to work with a third-party agency to represent them during the negotiations. This agency, in turn, should be competent enough to convince the creditors to reduce their client’s debt to 50 to 70 percent of the original amount owed. Even if everything goes smoothly, debt settlement entails some consequences. The debtor’s credit score will take a huge hit (about 45 to 125 points), thus making him or her less likely to secure another loan or credit card. Creditors are also less likely to agree on a settlement if they don’t have evidence proving the debtor really has the means to pay the debt in full.

What is debt consolidation?

On the other hand, there is debt consolidation: applying for a new loan that will pay off all of the person’s debts. In essence, it sort of refinances all debts into one, large debt. Based on the experience of JKB Financial, Inc. and other companies, this method is the most affordable and convenient of other debt relief plans, at least at first. Debtors should take note that the new loans they’ll apply for still have interest rates, albeit low ones. Therefore, they must strive to meet all payments on time or else their dues will pile up, thus putting them into greater debt than before. In addition, some of their property may have to be liquidated to serve as payment.