Is Debt Consolidation a good Idea ?

In such critical time so many people are in debt and want to move out of it. One of my friend also has debt and she is in such critical situation. Though she has a good job but she can not save as much money because so much she has to pay to creditors. So debt consolidation is a better option for her ?
Need Advice

Edited: 06/26/2010 at 08:27AM

Jim Wineinger

Real Estate Investor · ten mile, Tennessee

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Icon_minipost Jun 04 '09, 03:39 PM

imho, debt consolidation only works when it reduces debt.

Most poeple think that they can rob peter to pay paul. This only hleps to get our problems delayed and does not eliminate them. If we delay too long in repaying the debt then we get to the position that the economy has gotten to.

The main reason for "debt consolidation" is to put all debt in one basket which will allow you to lengthen the time that the debt can be paid back which lowers the monthly payments and gives you some liquidity, but this usually also increases the total amount that will be paid back over time so most debt consolidation actually increases debt.

There are times when the above statements are not true and the debt consolidation actually lowers the overall debt. When this is the case it is a very good thing!

Do not look at the monthly figures, look at the overall figures and you will be able to answer this question for your friend.

What good is it to her to save money, if in the long run it costs her penalties, interest, and late fees to save a little money. The best advise is to pay off the debt as fast as possible and not go into debt further.

Edited: 06/26/2010 at 08:27AM

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Jun 04 '09, 09:46 PM

Given that link in your signature, I'm almost positive I know what answer you're looking for.

I would argue, no, this is a bad idea. There's a root cause that needs to be fixed. She's spending more than she makes and running up debt in the process. If she does nothing but convert this debt into a longer term, lower payment debt, she'll end up running up more debt because the habits that got her into this position haven't changed.

She needs to spend less and adjust her existing expenses to give her the money she needs to pay off the bills she has. Like getting rid of cable and cell phones and completely stop eating out.

But, lets get real. There is no friend here. You're doing nothing but advertising the site in your signature.

Edited: 06/26/2010 at 08:27AM

Jon Holdman, Flying Phoenix LLC

Josh Green

Banker · Tampa Area, Florida

962 posts
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Icon_minipost Jun 04 '09, 09:58 PM

great catch jon! this thread can still be a great read for someone that really does have a friend! lol

i'm with jon on this one. debt consolidation is a band-aid. quit shuffling money around and get to the main issue of debt.

for those of you that truly are in debt and looking for options, i suggest reading 'total money makeover' by dave ramsey. it's a great foundation (and kick in the butt) to build on. while i'm not in 100% agreeance with all of his philosophies, i certainly am when it comes to SPENDING LESS THAN YOU MAKE AND PAYING WHAT YOU OWE!

Edited: 06/26/2010 at 08:27AM