Consolidation Loans Are Tempting – Here’s Why You Shouldn’t Get One

My debt situation and money situation hasn’t necessarily improved since I last updated you here. Some major changes have been:

1. Open discussion about selling one of the cars.
2. Finding other items in the house to sell.
3. A solid plan to find my other half a job through temp agencies in the area.
4. When we have $1,000 saved, we will begin to snowball every penny towards our debt until we are relieved of some of this pressure.
5. After we are a bit more comfortable, we will increase our savings to cover a six-month emergency. That way, if either of us is out of work for an extended period again, we are prepared.

During the process of settling all this, one thing came up over and over: should we consider getting a consolidation loan. Of course, it would help us pay a lot of our “petty debt” in one fail swoop, but isn’t taking on new debt to pay off debt just continuing the cycle?

If you’re considering pulling out a debt consolidation loan, hear me out. They aren’t all bad all the time. They’ve helped some people out tremendously, but here are three reasons we opted out.

Say No To Consolidation Loans

There are a plethora of reasons to “just say no” to consolidation loans. You may be paying a higher interest rate for a longer period of time (even if the payment is lower). There is also no guarantee your interest rate will remain the same in many cases. Below are the three main reasons we decided not to consolidate.

1. Our Credit Scores Aren’t That Great

We are back in that spot where our credit scores aren’t that great. We’ve missed some credit card payments that have hit our credit. Luckily, we’re planning on building a life where we won’t need a credit score because we won’t be looking to take out any debts. Also, our payoff plan will slowly increase our scores over time.

2. Most Consolidation Loans Want Collateral

Many consolidation loans want to know that if you don’t pay there’s something they can hold as collateral. For me, they wanted my car – which is worth far more than I have to consolidate. That alone was enough for me to not want to move forward.

3. What Are You Learning From Taking Out a Loan?

As I chatted about in our debt update, we’ve become fans of Dave Ramsey. In general, he doesn’t “believe” in debt consolidation because it tricks people into thinking they are eliminating debt. When, in fact, you will be in debt longer by consolidating. It may impact your life in a positive way immediately but if you really want that financial freedom, we all need to learn how to be more patient and do things the “long” way. Which, in this case, will actually take less time.

Everyone’s Finances Are Different

You may be reading this saying, “But Amanda, a consolidation loan helped me and my family get back on the right track.” That is great! I’m happy for you. However, for my situation and current debt, a consolidation loan would simply elongate the amount of time I’ll be in debt. Not to mention, my other half and I feel we need this time of “discomfort” to really enjoy, appreciate, and maintain our financial freedom in the future.

After taking a look at our finances, many of our smaller debts, we could pay off in a single swoop if we made it our focus. A few of them will be paid off in the next few weeks (yay).

Readers, I’d love to hear back from you on this topic! Have you consolidated debt? Did it help or hinder your financial situation?

Read More

• If You Must Get a Debt Consolidation Loan, Here is How
• When is Debt Consolidation a Realistic Option?
• Your Debt Doesn’t Define You
• How to Start Paying Off Debt, According to Dave Ramsey