5 Reasons To Avoid Debt Consolidation

5 Reasons To Avoid Debt Consolidation

by May 2, 2019Credit And Debt

If you are one of the millions of people in the United States struggling with debt, you’ve probably heard about debt consolidation. Whether you’ve seen ads on TV, online, or social media, the promise is almost always the same: one easy payment each month to replace the half-dozen other bills you struggle to pay.

However, the truth is that debt consolidation companies do not help you eliminate your debt. In most cases, you’ll actually end up paying more for longer than you would if you didn’t consolidate your debt.

It may sound counterintuitive, but individually paying off each one of your bills is a much better plan than trying to consolidate your debt. Here is why:

1) There’s No Guarantee Your Interest Rate Will Be Lower

While debt consolidation is often advertised as providing a lower rate than your current bills, that’s not always the case. Your actual interest rate will depend on your existing payment history and credit score.

Even if you do end up qualifying for a lower interest rate than what you’re paying on other bills, it’s not guaranteed for the life of the loan and can change.

2) Interest Rates Will Change

Many debt-consolidation offers take the form of credit card balance transfers. When considering those offers, you must understand that the low-interest rate offered is almost always just a “promotional rate.” That rate will go up over time.

3) You’ll Stay In Debt Longer

While it’s true that you may end up with a lower monthly payment, the reason for that is because the length of the loan has been extended.

Extended repayment plans means you’ll likely be paying off that debt (probably at a similar or higher average interest rate than you have now) for years longer than if you paid off each account separately.

4) Debt Consolidation Is Not Debt Elimination

Many people tend to conflate debt consolidation with debt elimination. All the money you owe is still there, it’s just taken a different form. The core problem remains the same.

5) It Doesn’t Address The Core Problem

The core problem isn’t the number of different debt accounts you’re holding. The problem is that your spending habits need work.

You need a plan to save more and spend less. Consolidating your debt doesn’t address this problem, and often masks it entirely with the appearance of having taken financial responsibility.

The sad reality is that many people who go through the debt consolidation process end up right back where they started. Why? Because their behavior with money never fundamentally changed.

What To Do Instead

As with most problems in life, there is no quick fix for getting out of serious debt. The best solution is to seek help from an experienced financial professional. Additionally, you’ll need to address the root behavior (your spending habits) that’s causing the problem and make a change.

Finally, getting out of debt is only the first step towards a more successful relationship with your finances. Learning how to stay out of debt, build your savings, and achieve your financial goals are all part of the process as well.

To learn more, and to request a free financial consultation, please contact us today.

Free Financial Planning Consultation

Would you like to speak with a financial planner about your specific needs? If so, we'd love to hear from you! You can book a free phone consultation with us right now by clicking "Schedule An Appointment".

Once you've picked an available day and time, and provided your contact information, your appointment will be booked. If you have any questions, or need to change your appointment, please call us at (707) 595-8702. We look forward to speaking with you.


Choose a day and time

Provide your contact info


Get professional advice