The Truth About Debt Consolidation

by Dave Ramsey

Myth: Debt Consolidation saves interest, and you have one smaller payment.
Truth: Debt consolidation is dangerous because you treat only the symptom.

Debt Consolidation is nothing more than a "con" because you think you've done something about the debt problem. The debt is still there, as are the habits that caused it; you just moved it! You can't borrow your way out of debt. You can't get out of a hole by digging out the bottom.

Larry Burkett says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our certified counselors will not recommend debt consolidation for a client. The reason that we do not use debt consolidation is because it doesn't work.

The Truth About Debt Consolidation

A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78 percent of the time, after someone consolidates his credit-card debt, the debt grows back. Why? He still doesn't have a game plan to either pay cash or not buy at all, and hasn't saved for "unexpected events", which will also become debt.

Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment. If you stay in debt longer, you pay the lender more, which is why they are in the business of debt consolidation.

The Real Way to Get Out of Debt

The answer is not the interest rate; the answer is a Total Money Makeover. The way you get out of debt is by changing your habits. You need to commit to getting on a written game plan and sticking to it. Get an extra job and start paying off the debt. Live on less than you make. It is not rocket science, but it is emotional, which is why most people need help getting through it from someone like Dave Ramsey. Don't try debt consolidation!

Success Stories

"We needed direction. We started The Total Money Makeover Plan and got on the narrow road to Financial Peace. We'll have paid off $11,000 in eight months and are well on the road to debt FREEDOM!"
-Kathy and James Smith

"We've actually relieved ourselves of over $50,000 worth of debt in two years just from using these principles."
-Russ and Mary Lee

Dave Ramsey is a personal money management expert, an extremely popular national radio personality and author of "The Total Money Makeover: A Proven Plan for Financial Fitness." Ramsey exemplifies his life's work of teaching others how to be financially responsible, so they can acquire enough wealth to take care of loved ones, live prosperously into old age, and give generously to others. This content is provided by DaveRamsey.com and may be used only in its entirety with all links included.

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