August 14, 2023

When Is Debt Consolidation Not a Good Option?

If you don’t plan to change your spending habits, that is, you still plan to use your credit card for anything you want, then debt consolidation is not for you. The chase to catch up with your bills will never end. Putting the credit card away would be a first step, but not the only one you need to consider before deciding that debt consolidation is your financial savior. Here are some other questions you need to answer:

  1. Are you willing to make a serious monthly budget and stick to it?
  2. Does taking out a new loan to pay off old loans (credit card debt) make sense?
  3. Are you willing to calculate whether the fees and costs associated with a debt consolidation loan, not to mention the length of the repayment period, will end up saving or costing you more money than your current payment arrangement?
  4. Do you understand that a debt management program requires a constant, on-time monthly payment in order to retain the privileges of the program?

If you can’t answer yes to all the questions, then debt consolidation might just be another road in the wrong direction for you.

Alternatives to Debt Consolidation

The decision to reduce debt is very much like the decision to reduce weight: the sooner you get started, the easier it’s going to be.

Debt consolidation is an early stage treatment. However, if your debt has reached the obese stage, not just overwhelming, but embarrassing, you might need to look at debt settlement or bankruptcy as your way out.


Pros for bankruptcy:

  • You get a second chance, a “fresh start” financially.
  • Chapter 7 bankruptcy only takes 3-6 months and all debts are forgiven
  • Won’t lose exempted items like retirement savings and could keep house, car, and work-related possessions.

Cons against bankruptcy:

  • You will lose access to credit cards
  • Chapter 7 remains on your credit report 10 years. Chapter 13 is there seven years.
  • Most possessions are sold to pay off creditors.


Pros for debt settlement:

  • Reduces amount of debt you pay, possibly by as much as 50%
  • May help avoid lawsuits or court judgments

Cons for debt settlement:

  • Balance due will grow because of interest rate and late payment penalties
  • Not all companies accept debt settlements
  • Damages your credit score for seven years
  • IRS taxes are owed on amount forgiven

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