Should I Get A Debt-Consolidation Loan?

Consumer advocate radio show host Clark Howards thinks most people are kidding themselves when they spring for a debt-consolidation loan:

It’s been my experience that when people do a debt-consolidation loan, all they really end up doing is rearranging the deck chairs on the Titanic. With one transaction, their credit card bills suddenly stop, and those people then say, “Oh, how nice, it’s all so tidy now, I now just have everything on one convenient bill.”

However, human nature being what it is, most of those very same people will then go and again charge their credit cards back up to where they had been. They’ll then have those bills and the bill from their debt-consolidation on top of that, and then what they’ve created is actually much worse than the initial problem they had.

You can push the vegetables around your plate but you still gotta eat them.


Edit Your Comment

  1. CRNewsom says:

    Debt consolidation is not the answer to the problems of debt, but rather, a tool to use in the lifestyle change required to claw your way back into the black. I, for one, have not used these loans, nor have I needed to, but there are those for whom they are helpful in getting back on solid financial ground.

  2. sickofthis says:

    @CRNewsom: …IF they cut up their credit cards.

  3. evslin says:

    Only works if you cut up the credit cards too. Otherwise the temptation of reloading your now empty Mastercard is going to haunt you.

  4. boandmichele says:

    no matter how bad the debt appears to be, the best way out is just lowering your standard of living, and pushing through it. ive destroyed almost $15,000 of debt in a year and a half just by saving money here and there, and committing several hundred dollars a month after my bills are paid. sure, i dont have a new tv/hd tivo yet, but that will come when im out of debt.

    debt consolidation isnt the answer, and neither is bankruptcy. however, if having everything on one bill helps you, then more power to you…


    i’m in a debt management program where we closed all my accounts and i pay them once a month and they send checks to each creditor. they said if i open new cards they’ll kick me out.

    i don’t know if it’s true, but i’m not testing it out.

  6. punkrawka says:

    Obviously this is anecdotal, but my wife had great luck with this for eliminating her debt systematically and lowering her interest rate from what it was on all the various credit cards.

  7. MaelstromRider says:

    In the early 90’s I took out a debt consolidation loan from my bank and it was really very helpful. Part of the loan agreement was that I had to cut up the cards I was consolidating there in the office and cancel the accounts. My credit was so bad at that point that I couldn’t really get new cards, so that did help curb things tremendously.

  8. compuwarescc says:

    Don’t spend so much money maybe?

    I don’t know why so many people seem to have so much trouble spending only the money that they actually have or anticipate having in a reasonable time frame.

    I have friends who buy new laptops using retail financing at 26% and can’t seem to understand how ridiculously expensive that is (over what the item ‘costs’)

    For people like that, debt consolidation loans are just another loan! Now they think they have twice as much money available.

  9. chc08 says:

    I graduated in 2004 and consolidated all my loans to lock in a rate of 2.5% or something. Considering Stafford loans are at 6.8% now that seems to have been a good decision. A lot of consolidations also include benefits such as 0.5% interest reduction for 36 straight on-time payments.
    Also, there were no fees associated with the consolidation (which was through the originator of my loans), and at the least it allows me to pay just one bill a month instead of one for each individual loan. Sure, not necessary, but definitely convenient.

  10. seraphicstar says:

    most places if you specificly give them instruction to cut checks to your credit card companies the cards will cancel.
    very very useful tool!! Hubby and I ended up getting just a regular unsecured loan, having them pay everything off… now that we have better jobs and are a bit more stable we can throw about 900+ per month at the loan.

  11. Flame says:

    It really all comes down to personal responsibility. Like I have said before, I work for a bankruptcy attorney. We get people every day that don’t even know WHO they owe money to. This kind of person is not going to be helped by a debt management loan. On the other hand, my parents just consolidated all of their debt, and they are going to have everything, including their mortgage on their house, paid off in 12 years. Considering that they just barely turned 50, I think that this will work out just fine for them. And they didn’t even have to touch their retirement savings to do it. So really, it just depends on what kind of person you are.

  12. Coelacanth says:

    Could maybe Consumerist post an article about the best debt consolidation services, versus just snarking at people who have a lot of bills to pay?

  13. missdona says:

    I did Credit Counseling (years ago). If you’re serious, I think that’s a better than a loan. They reduced or elminated intrest on most of the cards. I paid them by check once a month and they distributed to the creditors. My credit did not take a hit for being in the program, it was the same going in as coming out.

  14. strangeffect says:

    Some consolidators lower your interest rates, but that benefit is offset by a flat fee that they collect each month. At the beginning of the plan, the interest savings can be far greater than the fee. However, there is an inflection point where it’d be worth it to have the original rate just to get rid of the flat fee. That’s obviously up to the individual to determine.

  15. jmschn says:

    Debt consolidation works wonders to get people out of holes as long as they cut up their credit cards. Loans have such a bad stigma but i have witnessed the benefits of them first hand.

  16. spamtasticus says:

    I had about $14,000 in various debts ranging from $8,000 remaining on a car loan to credit cards. The interest rates ranged rom 9.9% all the way to 15%. I got on offer from Chase Bank for a credit card that included 2 checks in the mail. The checks were to transfer balances etc. One was for 0.99% for a year or so and the other for 3.99% for the life of the “loan”. Looked tempting but I went ahead and read the whole think vewy vewy carefully. I found the catch in that when you use the checks and also use the card wich has a 19% interest they pick which of the two your payments pay down. In other words If you have $10,000 “loanded” to you via one of the 2 checks and you then put $5,000 on the credit card after, when you send your payments in every month it only pays down the low interest loan and the high interest debt keeps on accruing. I got the 3.99% check, wrote the total amount of all the loans on the check and deposited it in my bank. When it cleared I paid off all my other cards and loans (the car had an added bonus that I could now change the insurance from full coverage to regular saving me over $2,000 for the year). When the credit card came in the mail. I cut it up and now have one payment at 3.9%. It basically ended up being one of the best financial management moves I have ever made.

  17. CumaeanSibyl says:

    @COELACANTH: I second this. Many such services are overpriced, inefficient, or outright scams. Even the non-profit ones aren’t all safe. And they all have such similar names that it’s hard to remember which ones you’ve heard about before.

  18. Mr. Gunn says:

    Come on…are people really that bloody stupid?

    spamtasticus isn’t. He’s onto their sneaky little “tricks”.

  19. hegemonyhog says:

    I’m finishing up a Debtwave program now – it’s been great. I got rid of four credit cards with over $10,000 worth of debt (signing up in 2004, finishing May of this year).

    It’s less debt consolidation than debt management, but it does force you to close the cards in exchange for much lower interest rates and smaller payments.

  20. ohiomensch says:

    @Mr. Gunn: “Come on…are people really that bloody stupid?”

    Umm.. yes, and desperate.

  21. htrout13 says:

    15 months ago I consolidated most of the debt I had built up in the years after I bought a house… refi mortgage to do it…Then stupidly ran the credit cards back up… Now I am back to where I started and realizing that I don’t want to be here… I closed all but one CC – and didn’t use it for 9 months – however managed to max it in 3 months… Still not sure how – but kicking myself now.

    Oh – and yes – I know I screwed up – and was stupid – but desperate times called for desperate measures…I found myself faced with bills and emergency purchases that I didn’t have money for (hot water heater, heating oil, tires for car) and used the card to take care of them.

    Now I’m living paycheck to paycheck, and dodging creditors…

    The real difficulty when you reach this point is that you don’t know which direction will work best in the long run… my house is safe, everything is insured, but I’m buying diesel by the 5 gal bucket to keep the house heated and not even making the minimum payments on anything – because I don’t have the money…

    It’s easy to look back, smack myself in the head and say ‘what was I thinking’… It’s not easy to look forward and figure out how to dig myself out… But I have learned my lesson and am not doing this again! I may even figure out how to dig myself out – without hurting myself in the long run…

  22. mike says:

    I agree. Debt-consolidation only works when you don’t rack up any more debt. If you do that, you’re not re-arranging deck chairs on the Titanic; you’re bucketting out the water in your lifeboat.

    This is especially true of you get a low APR. It can make life a lot easier and gives you more incentive to pay off early.

    I did a debt consolidation loan about a year ago and I’m almost consumer-debt free.

  23. courtarro says:

    Clark Howard … no ‘S’. He’s a singular guy, not plural at all.

  24. WhirlyBird says:

    Yeah, just rein in your spending. I frivolously charged $3500 on taxes resulting from my divorce, $3000 replacing all my furniture and appliances from said divorce, $2000 on repairs to my truck, and another $2000 for my son’s wisdom teeth removal (that’s just the part insurance didn’t cover). I should just pay it all off in one month, like all everyone else at Consumerist does. (There were $1500 in additional truck repairs, but I paid for those from my “emergency” fund.)

  25. satoru says:

    I recently had a long discussion with a friend about the entire mentality for some/most people in America. In Asia credit cards never seemed to catch on. My fiance from Hong Kong (NOT CHINA!! as she like to clarify) had a hard time even grasping what a credit card was even for, or why anyone would want/need it. In Japan, it’s still very much a cash based society. I recall having to carry around several hundreds of dollars on a nearly daily basis and not feeling weird about it. Doesn’t help that you spend $100’s like you would $20’s here though. Though I have no big sample size, it seems that in Europe there does not seem to be the huge problems with credit debt as there is here.

    Our own theory was two fold. Firstly that the whole “American Dream” had given people a sense of entitlement for just accumulating stuff, and more stuff. The other problem we theorized was that many people who are now 30-40 were raised in a very ‘instant sastifaction’ kind of way. Indeed my parents had a rough time! So they did spoil me a lot when I was a kid, not their fault but they obviously wanted to give me what they never had as typical immigrant parents. When you’re raised like this, you get trained to having your cravings satisfied immediately. Complement this with a device that allows you to get anything you want, whenever you want, and it’s a disaster waiting to happen.

    Fortunately my dad managed to instill me with the fear of god every once and awhile, and actually was pretty financially savvy! He’s been putting money in IRAs way before it was ‘cool’ or the status quo to do so, pretty much since the 60s.

  26. psyop63b says:

    DCLs are only good if you can get a break on the interest rate (22.5% on a credit card vs 8.99% on a DCL), but this isn’t a good option for student loans. You don’t save a lot on interest, and the origination fees will cancel out whatever savings you’ve gained.

  27. Boogaloo2 says:

    It upsets me that people here just jump to the conclusion that people with credit card debt are frivilous over-spenders. I paid my own way throught college and grad school, but student loans didn’t cover everything, thus the beginning of credit card debt. Then it took me a full year to find a “real” job so in the meantime I worked two retail jobs–again, those didn’t cover everything so more CC debt was added. Now I’ve got a great job making great money and I put almost half my monthly income toward debt, but I also have an old, crappy car that I have to keep putting repair money into. I don’t want to buy a new one & have my debt money going into a new car. I’m wearing the same clothes & shoes I’ve had for 5 years–nothing new. I won’t allow myself to shop. My fiance & I have decided not to have a wedding b/c we can’t afford it. We don’t own a house b/c we can’t afford it. Just be careful what you assume here.


    Yeah – I am in CCCS, and it isn’t really as helpful as I wanted it to be. My rates haven’t gone down that much, and I’m still getting slammed with finance charges. The only positive thing is that they take money out direct from my bank account so as long as the money is there on the same day of every month, I’m not in trouble.

    BEN: Post something about who the good and ugly of credit counselors!!



    I think the biggest thing that gets me is how some people say to get out of debt you “just need to increase your income” – like it’s so easy.

    It’s hard to get a job out there, and even harder to get one that pays decently. So… I feel you, is all.