Dave Ramsey says debt consolidation doesn’t solve anything. is he right?

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Don’t rule out this debt repayment strategy just because you don’t like Dave Ramsey.

Key Point

• Dave Ramsey says debt consolidation doesn’t solve the real problem: your financial behavior.
• Financial habits are most important, but debt consolidation can also help.

Debt consolidation is often recommended for those looking to keep their debts under control. If you are unfamiliar with how debt consolidation works, you should get a new loan or credit card and use it to pay off all your debts. That way, the monthly payment could be his only one and the interest rate could be lower.

Popular as it may be, there is one financial personality I am not a fan of. When one reader asked Dave Ramsey if debt consolidation was a good way to get out of debt, his answer was a clear no.

So is debt consolidation worth a try, or is Ramsey right?

Why Dave Ramsey opposes debt consolidation

Ramsey’s argument against debt consolidation is that it creates the illusion of progress when in fact nothing is being done. As he puts it, “I feel like I really did something to change my whole financial outlook when I didn’t.”

According to Ramsey, the root cause of debt in the first place is financial habits. That’s why he believes it’s important to change those habits.

Consolidating your debts can reduce your monthly payments. There is no doubt that the number of payments will be reduced. But in Ramsey’s view, it’s simply shuffling the same old debts.

Ramsey says the way to get out of debt is to stick to tight budgets and develop new financial habits. At least he has a point when it comes to overuse debt. However, it’s not fair to say that it’s everyone’s problem. There are many issues that can cause you debt, but some are completely out of your control, such as health problems or the sudden loss of income while you’re living paycheck to paycheck.

Overall, it’s true that getting out of debt is largely about following good 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 a reply to a reader about debt consolidation, Ramsey wrote: Maybe so, but all things being equal, most people would probably get lower interest rates and lower monthly payments.

Both of these are potential debt consolidation options, at least if your credit score is high enough. There are two general options.

• Balance transfer credit cards offer a 0% first year APR on the balance you transfer. The run-in period can last 18 months or more for certain cards, giving you a good amount of time to pay off what you owe.
• A debt consolidation loan is a personal loan intended to pay off an existing debt. These get a fixed payment schedule, with lenders typically offering terms of 24 to 84 months.

As Ramsey said, there is no secret to paying off debt. If you spend more than you earn, you will be in debt. Consolidating that debt and continuing to spend more than you earn won’t make real progress. The consolidated debt will increase and you will be back at the drawing board.

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

For example, let’s say you have $5,000 in debt on various credit cards and can pay $300 each month. Her APR of 18% can pay it off. Alternatively, you can transfer everything to a balance transfer card with 0% introductory annual interest for 18 months. Here are the differences:

• Without debt consolidation, your debt would be $5,797, and it would be paid off in 19 months.
• With debt consolidation, your debt will be $5,150 (original amount plus a 3% balance transfer fee) and will be paid off in 18 months.

Debt Consolidation is not going to do the job for you. But it can help you pay off your debt faster, make fewer monthly payments, and save some interest.