Is Debt Consolidation a Good Option?

Some friends of ours recently closed all of their credit cards and signed up for a debt consolidation program. While I think it is admirable of them to finally confront their problem, I wonder if that was the best solution to repairing their overall finances?

As soon as I heard that they had done this, I immediately started thinking about a time when I had turned to debt consolidation. It was when I was in my mid-twenties and I didn’t really want to confront the problem or pay down the debt. I just didn’t want to mess up my credit any more than I already had. So, I took what I thought was the easier way out, I turned to a company who promised lower monthly payments and repaired credit.

If I had actually stuck with the plan, maybe this would have worked out for the best. But the initial problem, the fact that I wasn’t budgeting and keeping consistent records of how much money I spent versus what I made, was the ultimate problem. I wasn’t really ready to confront my problem: I was spending more than what I earned.

My fear for my friends is that they are doing the same. Instead of confronting their problems with a self-made plan of action, they are hoping another company can solve their problems for them. The reason I think this is that the day after my husband spoke to his life-long friend, he and is wife decided to drive to another state and purchase concert tickets for a kid’s show. They were concerned about how much a hotel was going to be. However, they made their last minute plans and  made the trip anyway.

To me, this sounds irresponsible. If you just realized you are living above your means, close all your credit cards, and sign up for a debt consolidation program, you shouldn’t be traveling to a concert in another state the very next day. Am I being too judgmental?

This leads me back to my initial point, I’m not so sure debt consolidation programs are very successful. These companies claim to have a better rapport with the credit card companies and in turn they can get the interest much lower than an individual would be able to. However, if the person is unwilling to change their habits, and assumes the debt consolidation program will cure all their problems, then that person will continue down the same path.

I did some quick and dirty research and found that “78% of the time, the debt grows back,” to quote Dave Ramsey, after an individual has completed a debt consolidation program. I also quickly browsed Dave Ramsey’s article and found the same main idea: the basic problem is the person still hasn’t learned how to manage their own finances, set a budget, and stick to it.

I wish my friends luck and I hope they sit down and figure out their budget. Hopefully, this program if anything, will allow them to get their credit back on track.

In the UK debt consolidation can refer to various different debt solutions, some of which may be able to help people tackle their debt problems. This article discusses whether debt consolidation is a good idea.