Dave Says: What’s Wrong with Debt Consolidation?

Dear Dave,

Why are you against debt consolidation?

-- Misti

Dear Misti,

The idea of debt CONsolidation is to get you a lower payment. This sounds good on the surface, but there are only two ways to get a lower payment – either lower the interest rate or lengthen the term of the debt. So, you stay in debt just as long or even longer. I call it debt CONsolidation because it’s a con. These things rarely help much on the interest, it keeps you in debt longer and maybe the best reason is that you can’t borrow your way out of debt. Nearly 90 percent of people who fall for debt CONsolidation wind up with even more debt because they don’t change the habits that got them into debt in the first place.

The way to get out of debt is by getting mad and selling stuff. You do a debt snowball, list your debts smallest to largest, make minimum payments on everything but the little one and then you attack it with a vengeance. Then you work your way right down the rest of the list. You will get out of debt faster doing that because focused intensity is more important than math when it comes to getting out of debt. Go crazy and get some righteous anger going on about it. You’ve got to draw a line in the sand and determine that you’re never going to do the stupid things that got you into debt ever again. There is no magic pill. There’s no microwave approach to this, and that’s what debt CONsolidation pretends to be. You cannot borrow your way out of debt!

-- Dave