Consolidation the Answer?
by Dave Ramsey

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Dear Dave,

We have about $20,000 in debt, and my husband and I have made a resolution this year to pay it off. I think we should live on a really tight budget and save like crazy, but my husband is really fired up about using a debt consolidation service. What can I say to make him change his mind about this?

Brandy

Dear Brandy,

Debt consolidation services aren’t evil, but there are huge problems involved in using them. For one thing, it will trash your credit for the purposes of buying a house. According to the underwriting guidelines of both Fannie Mae and FHA, you will be treated as if you’d filed Chapter 13 bankruptcy if you use one of these debt CON-solidation outfits.

Yes, I called it CON-solidation, because the whole thing is basically a con. You think you’re doing something about your debt problem, but the debt is still there, and in the end, so are the bad habits that caused the debt.

The consolidation idea seems appealing to lots of people, because usually there’s a lower interest rate or lower monthly payment involved. In most cases, however, the lower interest rate or payment only exists because the term is extended. You might pay a little less each month, but you end up staying in debt even longer!

There’s another problem. Your husband wants to wiggle out of the mess instead of owning up to it and fixing it. Sometimes you’ve got to face the music, Brandy. It’s a behavior issue. Making sacrifices and living on a tight budget is the best way to fix this mess and learn a lesson in the process. Live like no one else, so that later you can live like no one else! There’s no magic pill, and no consolidation company is going to get you out of debt and help you stay out of debt. The answer is you, Brandy. You are your best and only secret weapon. You’re never going to learn how to get control of your finances if you turn it all over to someone else.

– Dave

Photo by Jasper Greek Golangco

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Question to Dave Ramsey Posted by cheryl from california What to do? Husband is a good man, has provided considerable assets. Problem: he seems addicted to debt,likes risky involvement, (he calls "opportunity"), is angry, when I point out failure to follow good counsel. Some assets are poor performers, or non performers. We are not young. Assets are substantial, not income, property invested in TIC's, personal note. Most probably can't be sold. Can you alert me by email, if/when this question is addressed?
Thank you, Dave.... Posted by Linda from Spanish Fork, Utah I just have to say that we in our family LOVE Dave Ramsey and what he teaches. My husband and I are retired and we just got hooked up with Dave's TOTAL MONEY MAKEOVER. We are inspired. We are in more debt right now in retirement than we have ever had in our life. We are jazzed up to work Dave's plan and get out of debt...to do so we will live like no one else so later we will be able to live like no one else. The best thing about this is that we have introduced our 5 daughters and their husbands to this idea. Some are more accepting of it than others but it is in their heads...something to think about. We hope that soon they will all get on the TOTAL MONEY MAKEOVER boat and just DO IT!!! Thank you so much for your common sense approach to such a debilitating problem in our society.
Do not confuse with School Load Consolidation Posted by Joshua from Pocatello, ID Talking with Mortgage Lenders and reading other financial experts advice, there is a difference between consolidating your school loans and using a 'Debt Services Company' to get yourself out of debt. Consolidating your school loans will NOT 'trash' your credit, nor does it lower your monthly payment necessarily. However, now is one of the best times to consolidate your school loans to lock in a very low interest rate. If your $20,000 is in school loan debt, they YES Consolidate and Yes pay it off as soon as you can. But also consider the fact that 4% interest on your school loans is less than the interest you can make with an investment in a CD or money market account.