Dave Ramsey says debt consolidation solves nothing. Is he right?

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Don’t rule out this debt-clearing strategy just because Dave Ramsey doesn’t like it.


Important points

  • Dave Ramsey says that debt consolidation doesn’t solve the real problem, which is your financial behavior.
  • Although financial habits are the most important thing, debt consolidation can also help.

Debt consolidation is a common recommendation for those trying to get their debts under control. If you are unfamiliar with how debt consolidation works, you will need to get a new loan or credit card and use it to pay off all of your debt. Then you only have to make one monthly payment, possibly with a lower interest rate.

It may be popular, but there’s one financial personality who isn’t a fan. When a reader asked Dave Ramsey if debt consolidation was a good way to get out of debt, his answer was a resounding no.

So, is debt consolidation worth trying, or is Ramsey right? let’s find out

Why Dave Ramsey is against debt consolidation

Ramsey’s argument against debt consolidation is that it gives the illusion of progress without actually doing anything. As he puts it, “It makes you feel like you really did something to change your entire financial outlook, even though you didn’t do it.”

What Ramsey says owes you in the first place is your financial habits. That’s why he believes it’s important to change these habits.

If you consolidate debt, you may have a lower monthly payment. You definitely have fewer payments to deal with. But from Ramsey’s point of view, that’s just shuffling around the same old debt. You haven’t addressed the real problem, which is the behaviors that led to your debt.

What Ramsey is saying is that eliminating debt is a matter of budgeting tightly and building new financial habits. He’s right about that, at least when it comes to debts that have arisen as a result of overspending. However, it is not fair to say that this is the problem for everyone. There are many issues that debt can cause, some of which are not entirely under a person’s control, such as medical problems or a sudden loss of income when living paycheck to paycheck.

Overall, though, it’s true that getting out of debt is all about following the right financial habits. But like many of Ramsey’s opinions, his stance on debt consolidation is extreme.

Debt consolidation can take your repayment plan to the next level

In reply to a reader about debt consolidation, Ramsey wrote, “Interest rates aren’t the problem, and the number of payments you face isn’t the problem.” Maybe so, but other things being equal, most people probably would take a lower interest rate and fewer monthly payments.

Both are possible with debt consolidation, at least if your credit rating is good enough. There are two popular options:

  • Funds transfer credit cards offer an introductory 0% APR on funds you transfer. The introductory period can take 18 months or more for certain cards, giving you quite a bit of time to pay off your debt.
  • Debt restructuring loans are personal loans intended to pay off existing debts. These offer you a fixed payment term, with lenders typically offering terms of between 24 and 84 months.

Ramsey is right that there is no trick to paying off debt. If you spend more than you earn, you’re going into debt. If you consolidate that debt and then keep spending more than you earn, you won’t make any real progress. Your now consolidated debt will grow and you will end up back at zero.

The key is to cut back on spending and use as much money as possible on your debt. And when you do, debt consolidation is a great way to speed up the payout process.

To illustrate, let’s say you have $5,000 in debt spread across different credit cards, and you can pay $300 a month on it. You could pay that off with an APR of 18%. Or you can move it all to a balance transfer card with an introductory 0% APR for 18 months. Here would be the difference:

  • Without debt consolidation, your debt would cost you $5,797 and be paid off in 19 months.
  • With debt consolidation, your debt would cost you $5,150 (the original amount plus a 3% referral fee) and be paid off in 18 months.

Debt consolidation will not do the job for you. You must continue to make those monthly payments and avoid new debt. But it can help you pay off your debt sooner, reduce the number of monthly payments, and most likely save you some money on interest.

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