Debt Consolidation – Is it a bad idea?

by Ron Haynes

I’ve been contacted by many readers via email asking personal finance questions. I am always thrilled to hear from ANYONE but I get especially interested in people who are asking for help or guidance. Such was the case with one reader named “Bob,” (the name has been changed) who asked me about debt consolidation. Here is his email.

I am a new fan to your site, I got a link from I have an important question for you. I am a college student, and I’ve found myself in more than 7k in debt. I was living on my own for a few years and got upside down on some payments. I was wondering if I should attempt debt consolidation or if I should try to pay off each debt individually. I’m living at home now till I finish school and would like to get my debt taken care of. Do you have any suggestions?

It’s a heavy burden on me when I’m asked important questions that can have monumental consequences for years to come. I don’t take the answers lightly and I certainly wish to insure that everyone knows that I am NOT a personal financial planner. My insight comes from personal experience and, while it does have value, there are aspects to my experiences that could change the answer if things don’t line up with your situation.

That being said, my answer about debt consolidation is almost always – don’t, but there are some cases where it will work. Most cases though, end up with nothing changed and just one more loan to have to pay back.

Here is my response to “Bob:”

Thanks for contacting me. First, please understand that I’m not a financial planner and that my ideas are from personal experiences.

That being said, I would stay away from debt consolidation in most cases. You really aren’t doing anything to eliminate your debt, you’re just moving it around. You’ll never borrow your way out of debt. Sometimes a debt consolidation loan will give you some monthly “breathing room,” but you will have to be careful not to run up more debt on your newly paid off accounts.

Many times people will be tempted to consolidate debt for a better interest rate and the rate usually IS lower, but in 9 times out of 10, the term is much longer. All you’re really doing is extending the debt’s life!

The best way to get out of debt is with a plan you have personally written on paper. Dave Ramsey calls his plan the “debt snowball.” As you write out what you owe, list the lender, the balance, the interest rate, and the minimum payment. Arrange the list from largest balance to smallest. Pay the minimums on all of them except the one with the lowest balance. On this one, pay the minimum plus anything else you can. You’ll pay it off before you know it. Then, add the payment you were sending to the first lender to the next debt up the ladder. Continue by sending paid off debt 1′s payment plus paid off debt 2′s payment to still active debt #3. The total amount you budget for debt payments will remain the same every month. What changes is who you’re sending it to and the payment amount sent to each individual lender.

People have been successfully using this method for decades and it works. Read this blog entry at No Credit Needed: How To Get Out Of Debt.

Thanks for your kind words and encouragement.

Debt is a symptom. Let me say it again, debt is a symptom. It’s a symptom of discontent, of impatience, of a lack of self discipline, of poor planning, of mistrust, and of living beyond your means.

What happens in far too many cases of debt consolidation is that the problem wasn’t solved by another loan. Having 4 credit cards paid off by one big debt consolidation loan doesn’t address the spending problems, the planning problems, the contentment problems, or the patience problems. Once those old cards are zeroed out, most people start using them again, get right back into the same problem they had before and now, have 4 cards maxed out with a big old debt consolidation loan hanging around their neck. What needs to happen first is a change of heart, and that starts by examining why we went into debt in the first place.

Essentially, when I go into debt for anything, I’m borrowing from my future. I’m taking money out of my future and spending it today. If I’m spending it on items that have lasting value, that increase in value, that isn’t so bad. If I’m borrowing from my future to buy things that will have zero value in less than 5 weeks, that isn’t so good.

We have a 5-5-5 rule at my house when the kids are, let’s say, they’re not in the best mood to get along with each other. I say to them, will this really matter in 5 days, how ’bout 5 weeks, how ’bout 5 months? If the answer is no, then don’t worry about it. I think we can apply the same rules toward buying something that will put us in debt.

Will I be glad I bought this on credit in 5 weeks? How about 5 months? How about 5 years? If the answer is no to any of these questions, should you really be borrowing against YOUR future for a little fun today?

About the author

Ron Haynes has written 1001 articles on The Wisdom Journal.

The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.

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jason holmes

Debt is a symptom>>>> it is a symptom of lack of self restraint. Though in some cases it is not the love to splurge that leads people to messy financial situation but unexpected disasters, accidents and illness. That’s probably the reason why there is a need of budgeting in everyone’s life. A good budgeting plan takes into account of expenses that can occur unexpectedly…thus saving you from falling into financial hot water. But the question arises how many of us actually believe in budgeting?

Unfortunately many of us become disheartened while making a budget and give up before even making any gain. There is a common myth that surrounds budgeting and it is “Oh my god! budgeting is like a financial handcuff” But it is not the reality…..budgeting helps us in controlling our instincts of spending on something that in the long run we will regret. Very much like the 5-5-5 rule……may be after 5 weeks or 5 months, we will regret the decision of not managing our financial lives efficiently.


jason holmes »
Thanks Jason, you’re right. It is a symptom of lack of self restraint. I would categorize the messy financial disasters as a symptom of lack of planning or just poor planning skills, and just like you said, a budget is what’s needed.

CiaranFrom Chance

Over the past 8 months I’ve read a lot of debt advice blogs and the advice you’re giving here seems to be the consensus opinion.

I understand that consolidating debt is not the answer to your problems, but wouldn’t it be the logical first step, just to get everything in one place?

btw, love the 5-5-5 rule… think that must work great, especially with kids who tend to forget what they were fighting about almost immediately.


CiaranFrom Chance »
My take is that the best place to get everything in one place is with a legal pad, a pen, a calculator, and some hard thinking while sitting at your dinner table. If someone has $400 to pay on their 10 debts, and the total of their minimum payments is $750, then consolidation might give them some breathing room. But, if there isn’t a change of heart, they will run up their old credit accounts again and be in a worse situation than before.

The MOST important thing is the change of heart, a new attitude. Without that, all anyone is doing is delaying the inevitable and making themselves more miserable along the way.

CiaranFrom Chance

I understand everything you guys are saying and realize there has to be a fundamental change in the person’s attitudes towards debt, the way they live their life, spending habits, etc.

But from an administrative (and psychological standpoint) isn’t it easier to start this process after consolidating it all into one place, couldn’t it be considered the first meaningful step towards change?

My reasoning here has to do with my experience on the investment side of the coin. When clients have too many accounts everywhere, they tend to feel things are out of control and unmanageable (not being able to see the proverbial forest from the trees) and are often somewhat paralyzed, even if they feel they want to change. They are overwhelmed by statements, prospectuses, annual reports and continue to meander on.

I’ve found once they’ve been able to consolidate the accounts into a more central location, it often brings a renewed sense of what needs to be done.

It was a small but vital step in the right direction, serving as an important catalyst for re-allocating their investments in a far more efficient manner.

Now I know you can’t draw a direct parallel between consolidating debt and consolidating your investment, but I would think some of the psychology in doing so would be similar.

Interested to hear what you think…


I guess it really depends on each individual situation. From your experience, you’re dealing with someone who is seeking out sound investment advice from a counselor (you) who is tasked with maximizing their return. That is your job, your training, and your goal if you are to keep that client.

A debt consolidation loan company is only interested in one thing: maximizing their return. They do this by stretching out 4 or 5 years worth of debt to 10-20 years (or more). They show a smaller interest rate but a much longer term. They really don’t care if you close all your other credit accounts or if you run them right back up to the maximum credit limit.

Yes, it would be easier to administer just one loan, but that almost never happens. One loan soon becomes two, then three, four, five…

From the psychological side, I think there’s a lot to be said for seeing small successes along the way, even if there is more to keep up with. When a person can write “PAID OFF” on their $75 doctor’s bill after one month, then write “PAID OFF” on their $292 car repair bill two months later, then write “PAID OFF” on their $475 furniture store bill, well, you get the idea. They get juiced! I know I did. There isn’t much to compare with seeing progress from the starting gate.

I do understand what you’re saying and I do see your point. There are times that consolidation would be a good idea, but in my opinion, those times are few and far between.

Frugal Dad

I’ve tried to borrow my way out of debt in the past and it was a monumental failure. Ron hit the nail on the head here – if you don’t change the underlying symptoms causing the debt you will just fall further and further behind. Now there are some cases where consolidations make sense, but only if the person has sworn off debt, shredded all cards, etc. In most cases it just makes sense to keep plowing through your mess until it is all cleaned up.


Plowing through it is tough, but what doesn’t kill you makes you stronger ;)

Jeff@My Super-Charged Life

We consolidated some debt into a home equity loan just before we heard about Dave Ramsey and started his plan for becoming debt free. From my experience, I can vouch for the idea of it being easier psychologically if when you start working your debt snowball, you have several smaller loans instead of just one big one. We have had to work for 20 months at paying off one big debt. We never got to experience the success of getting some smaller ones paid off along the way. Since, personal financial success is 80% behavior, it really helps if you can have some psychological boosts along the way.


Wow, that’s right. “Personal finance is 80% behavior.” I’m going to steal that one! (I’ll give you credit though :)


I have to agree that debt consolidation just leads to more debt, unless you can do it with an existing account you already have. Getting out of debt just requires determination and a change of attitude – I am not sure it matters where the debt is held, but moving it around or borrowing more to get out of it doesn’t really teach a lesson, I don’t think.


I really love the snowball idea working up the ladder to pay off your debt really helps to decrease being so overwhelmed, there for giving up. This way you can focus on taking care of one debt at a time meanwhile making the minimum on your other debts. As you move up you get closer to your ultimate goal. Really great advice to all considering consolidation.

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