If you’re thinking about credit consolidation, you might want to read Dave Ramsey’s advice.
- Credit consolidation is the consolidation of multiple credit cards into one debt, which can often lower your interest rate.
- Still, financial expert Dave Ramsey thinks that’s a bad idea.
- Ramsey notes that when you consolidate your debt, you’re not really solving the debt problem.
Financial expert Dave Ramsey urges people to take debt repayment seriously and focus on paying off their debt as quickly as possible. But there’s one debt repayment tool he thinks might not be a good idea to use: credit consolidation.
As Ramsey explained, “Credit consolidation is the process of accepting multiple credit card payments (with very high interest rates) and consolidating them into one payment. The goal of consolidation is to exchange all those payments and high interest rates for a loan with one payment and a low interest rate.”
Swapping expensive debt for cheaper debt might sound like a good idea, and even Ramsey admits it “sounds good.” But, despite the fact that credit consolidation may at first glance seem like a good approach to getting out of debt, Ramsey is not a fan of it.
Here’s what Dave Ramsey has to say about credit consolidation
Ramsey has a few key objections to consolidation.
First and foremost, it says you might not always get a better rate when you consolidate your debt — and sometimes your new loan can charge even higher interest than your existing debt. In this situation, he rightly points out that there would be no advantage to using this approach.
But even if you can get a better rate, he still doesn’t believe that credit consolidation is a good approach to take. It’s because “You can’t borrow to get out of debt.”
Ramsey said if you consolidate your debt, you’re not solving the real problem, which he says is that you’re not sending enough extra money to your creditors and you have no control over your spending. .
A lower interest rate won’t solve these problems, he explained, so you shouldn’t look to credit consolidation as a solution.
Is Ramsey right?
As mentioned above, Ramsey is correct that you wouldn’t want to consider credit consolidation if you had to do it at a higher interest rate. In most cases, you also wouldn’t want to go through this process if you ended up paying the same rate as on your current debt – especially if your new loan would lengthen your repayment time since the extra time spent paying interest will make reimbursement more expensive.
However, he is wrong about whether credit consolidation can help. Despite what he says, sometimes the high interest rate is really the problem when it comes to debt repayment. You may have reformed your spending habits and sent every dollar you can to your creditors, but if your interest rate is 27%, it will still be much harder to get out of debt than if your interest rate is 27%. interest is 7%. %.
So while you shouldn’t assume that simply consolidating your debt will help you out, you should Definitely consider taking this step to lower your interest rate if you’re serious about paying down debt and committed to not falling back into the hole.
If you can lower your financing costs, all those extra dollars you work so hard to send to your creditors will not only be eaten up in interest, but they’ll actually help the principal balance drop faster.
There’s no reason for you would not want this – and every reason to move forward to make it easier for you to pay off your debts so you can get out of debt faster and with a lot less stress.
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