Is Debt Consolidation Always a Good Option for Debt Relief?

Debt consolidation may not always be a good debt relief option. Why? There are few reasons and these reasons are interlinked. “Your financial stability is determined by your spending habits. And unless you strike a balance between your income and your expenses, it is difficult to maintain financial equilibrium.” ,

Undoubtedly, debt consolidation has helped many debtors get out of debt and it is not a very bad debt help option either. However, availing debt relief alone will not suffice; you need to change the manner in which you handle your finances.

If you have to face an unavoidable financial emergency and if you fall behind on your payments again, your lender will take away your collateral. And in most of the cases, collateral used is your house. This is true in case you are opting for a debt consolidation loan that is secured.

There is another reason why debt consolidation may not meet your requirement always. It is a well known fact that you are making payments as per a new repayment plan if you enroll for a debt consolidation program. For reasons unknown if you have to shell out cash all of a sudden, it will be in addition to what you are paying each month. This may make you fall behind on payments again.

Regarding this subject, Mr Marcus remarked “As long as you are able to stay within the boundaries of your regular expenses and making payments as per the repayment schedule, debt consolidation will work fine. The moment you have to shell out extra cash and you don’t have a financial support to back you, you may be heading for trouble again”.

With the help of a debt consolidation program you can do away with debts related to credit cards, student loans, store cards, utility bills, medical bills, personal loans etc. You will not be able to wrap up your debts that include mortgage and auto loan.

“When you consolidate your debts, you pack your multiple debts into a single account that makes your debts manageable. This can be done either with the help of a debt consolidation program or a consolidation loan”
In case you are opting for a debt consolidation loan that is a type of personal loan, you may or may not use collateral. In case you are using collateral, the interest rate attracted by the consolidation loan will be less. However, if you are not using collateral, the amount you have to shell out as interest rate is very high.

“When you hire the services of a debt consolidation company, they will talk to your creditors and convince creditors to reduce interest rates. It lowers your monthly payments considerably. A repayment plan is also worked out so that you can make payments as per the new repayment plan. The repayment plan is usually prepared taking into account your convenience in making payments”, Ms. Parker said. “That could mean the difference in making the bills this month or not”.

Debt consolidation is the taking out of a loan to pay off the other lines. If anybody wants to just pay your lines for you and you pay them. That is a recipe for disaster. First there is no reason that your creditors will agree to pay them if you are current. This means that they plan to starve your creditors until they agree to take less money. If not then there is no benefit to the lenders.

If you can pay them the best thing is to pay them. It took you some time to get into this mess it will take time to get out.

Credit problems are not economic problems they are behavioral problems. You have to change the way you behave or using any service will just get you out of one problem to put you into another one later on.

If any of them take your money without teaching you new habits, then they are just taking your money and you will be worse off for the effort.

As Dave Ramsey says you need to act your wage.

Being this is a Real Estate Investment Club Website, I’ll answer/respond from a R.E. Investor regarding debt consolidation. First, as an investor, debt and leveraging debt can be a winning strategy. As a matter of fact and personal experience, you can leverage debt to pay off consumer debt. Here is an example that I have done hundreds of times since 1991:

Buy a mobile home on a rental pad by owner for $3k cash. Resell for terms of $500 down and $200 per month for 5 years. This results in the creation of a nearly 100% yield. Spend $3k, get $500 back as a down payment, leaving $2,500 left in the deal. Now you have $200 per month for 5 years ($2,400 annual cash flow) on a $2,500 investment.

What the heck does this have to do with debt and consolidation, you ask? Watch this!

Let’s say you have a debt like a credit card, car loan, mortgage, etc. outstanding that happens to be a payment of $200/month and 12% interest. You can use a created note shown above at nearly 100% yield to pay off a debt of $8,991.01 at 12%.

I hope none of you are lost here as that could mean you haven’t a clue on how to use a cash flow calculator. I use a BA II Plus and here’s what this looks like:

60 95.01% $200.00 $2,500
60 12.00% $200.00 $8,991.01

When you know how to create substantial yields with small and large notes and mortgages, you can use them to pay off debt at a fraction of the balances you owe. This is a major integral component that you must know in order to be a highly successful real estate investor.

Hope this helps.

Rob in Atlanta
Real Estate Investment Coach

Rob can you elaborate :shocked more on the formula you are using !! for the debt relief !

Debt consolidation gives you one payment on 100% of your debt. Research debt management, they will negotiate around half of your debt and give you one payment. It will show up as ‘settled, but not in full’ on your credit but you can repair your credit quickly.

I appreciate the concern which is been rose. The things need to be
sorted out because it is about the individual but it can be with


Debt Relief


You are not describing a debt consolidation company, but rather a credit counseling agency.

I believe in most cases it is. It does bring down your credit rating a bit. But it has certainly worked for me.

Debt consolidation does not solve core issue, whixh is insufficient income. Work on raising income and reducing debt. Save what you can, but realize that you cant cut your way to success