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Debt Consolidation: Is It Right For You?

By Erik Folgate

With millions of Americans taking on debt that they cannot handle, numerous non-profit debt consolidation and credit counseling companies have popped up all across the country.  Many people think that consolidating debt is a magical way to reduce payments and interest rates, but it comes with implications.  You need to know the truth about debt consolidation before you make the decision to hand over your finances to a stranger

Relieving, not Curing

Debt consolidation is like Nyquil.  It does not cure the illness, it only relieves the symptoms.  Debt consolidation and credit counselors will restructure and renegotiate your debt, but the person who was irresponsible enough to get into so much debt is not cured.  You have to change your habits and start taking control of your finances.  70 percent of Americans that consolidate their debt end up accumulating more debt than they begin with. 

Debt Consolidation Can Ruin Your Credit

This is a fact, and anyone who does not believe it is kidding themselves.  Obviously, the debt counselors will not tell you this is true, but put yourself in the shoes of the debt consolidation company.  They have no profit motive, so how concerned do you think they are with paying your payments on time?  I have heard numerous occasions where these companies forget to pay bills on time, which destroys your credit.  Plus, if you sign with a debt consolidator, you will be treated as if you have a foreclosure or bankruptcy on your credit report by mortgage companies.  Signing with a debt consolidator tells them that you are irresponsible with debt AND you have given up trying to deal with it yourself.  The bottom line is that it is a nightmare to have someone else handling your finances. 

Loan Consolidation vs. Debt Consolidation

Loan Consolidation is when you take out a home equity loan to pay off all of your other debt, and again, this doesn’t solve your debt problem, it just relieves some of it.  It is much different than a debt consolidation where you have a third party handle your debts and you pay that third party a monthly payment. 

Consolidating your student loan debt is something that I HIGHLY RECOMMEND.  It will reduce the chance of you missing a payment, and it will lock in a low-fixed interest rate for the life of the loan. 

The Solution

Most people do not need to file bankruptcy or go to a debt consolidator, but that is the easy way out.  It is also the wrong way out if you seek to be wealthy someday.  If you want to CURE your debt problem, then cut up your credit cards.  They are only a temptation, and they have not helped you yet, have they?  Haven’t redeemed those airline miles after 10 years, have you?  Get on a budget, and spend your money before you spend it.  List your debts smallest to largest.  Pay off the smallest debt aggressively, and then apply that payment to the new payment of the larger debt, and so on.  You will gain momentum as you check off debts that you paid off, AND you will constantly be applying old debt payments to new ones.  This is called the debt snowball.  If you have any questions about it, feel free to email me


Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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