Humor writer Arthur Bloch (block) once said, “Every solution, breeds new problems.” Okay, that’s a bit cynical, but I can think of one solution, more like “the easy way out” that can definitely lead to new problems, and get you in worse trouble than when you started. This is MoneyWise Live - biblical wisdom for your financial decisions.<ul><li>The “easy way out” I’m talking about is debt consolidation and I’ve made no secret that I’m not a fan of debt consolidation, and that’s for two reasons:<ul><li>	It’s dangerous</li><li>There’s a much better option.</li></ul></li><li>The Danger:<ul><li>The tantalizing idea behind debt consolidation is that you’ll reduce your overall monthly payment by refinancing several debts into one big one but in order to make that one payment smaller, you may have to sign up for a longer term loan which means you’ll probably end up paying more in interest in the long run than you would by paying off the debts individually.</li><li>One might think that having a lower monthly payment will give you a chance to pay more on the principal each month to get rid of the combined debt faster, and that’s certainly true but too often that’s not what happens. Having that extra cash on hand leads to “lifestyle creep”, and folks just just end up continuing to pay the minimum amount each month. That’s how the debt gets stretched out over several years, which costs more in interest.</li><li>Consolidating your debts could temporarily lower your credit score in two ways:<ul><li>Whenever you apply for a new credit card (to transfer balances to it) or you apply for a home equity loan to consolidate, that gets reported to the credit bureaus as a “hard inquiry,” and it’ll lower your FICO score.</li><li>If you get a new card or loan and you close out the old accounts, it’ll lower the average age of your credit, which also lowers your score. Again, if you’re struggling to pay off the debts you already have, let’s not worry about a low credit score hampering your ability to get new credit, and even more into debt.</li></ul></li><li>The greatest danger - it’s really just “slapping on a band-aid” when you really need a tourniquet and doesn’t fix the underlying problem, which is living beyond your means.</li><li>Sometimes you can be overwhelmed with a financial emergency like medical bills, but that’s usually not the case when someone consolidates debt. More often it’s because they’re simply overspending, their lifestyle has gotten out of control.</li><li>And that’s how debt consolidation becomes really dangerous. Instead of reining in your lifestyle, you continue to overspend. And if you don’t close the accounts you’ve paid off, you can now continue to charge stuff on them.</li><li>Then you find yourself having to make payments on those accounts, PLUS the consolidation loan you took out. It seemed like a good idea at the time, but you’ve only managed to DOUBLE your problem.</li></ul></li><li>What’s the solution that doesn’t breed new problems? Obviously you have to attack the underlying issue, not just the symptom. You’ve got to reduce your spending, and there are two great sources of help for that:<ul><li>Sign up with one of our coaches at MoneyWise.org. When you do, a coach will work with you to prepare a written budget that will enable you to meet your monthly obligations, without using credit cards. There’s no charge for this service except the minimal cost of a workbook. Our coaches are all volunteers who love to help God’s people get control of their finances. That takes care of the problem of overspending.</li><li>You can get help from our friends at <a href="https://www.christiancreditcounselors.org/">Christian Credit Counselors</a> who will put you on a debt management plan, not debt consolidation. They can help you pay off your debts up to 80% faster than going it alone and have arrangements already in place with most major credit card companies and lenders to lower your interest rates. You only have to make one monthly payment, and you solve your debt without taking out a new loan. </li></ul></li></ul>Next, Rob answers these questions at 800-525-7000 or via email at Questions@MoneyWiseLive.org:<ul><li>If you now have your 96 year old dad in assisted living that is going to cost about $7,000 per month, you have $250,000 cleared from the sale of his townhouse and he receives $1,900 per month in Social Security, where should you put the money cleared from the sale of his home to make it last as long as possible?</li><li>If you've been struggling with coming up with a budget, your job is still out because of COVID and you have some medical bills in collection status, what should you do?</li><li>If you're 63 and have $65,000 of student loan debt and you're hoping to retire at 65, how are you going to possibly pay back the debt?</li><li>If you're concerned about market volatility, should you move your funds into a gold investment in your 401(k)? </li><li>If you have quite a bit of money just in savings and need to speak with an advisor, how can you find one you can trust?</li></ul>&lt;&lt;&lt; MoneyWise Market Update with Bob Doll &gt;&gt;&gt;<ul><li>Volatility is the order of the day; what do you make of these markets?</li><li>Is the market predicting a recession in the offing?</li><li>Has your slant on Bitcoin changed?</li><li>What are you seeing around the globe that will have ripple effects in the US?</li><li>What do you make of Chairman Powell's comments during the last Fed rate increase?</li><li>A common stock buyer is now able to take advantage of dollar cost averaging right now, right?</li></ul>Be sure to check out the rest of MoneyWise.org to connect with a MoneyWise Coach or access our books and our many free helpful resources. You can also find us on Facebook (MoneyWise Media) and join the conversation. Thanks for your prayerful and financial support that helps keep MoneyWise on the air. And if you'd like to help, just click the Donate tab at the top of the page.

FaithFi

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“Every solution breeds new problems.” Okay, that’s a bit cynical but I can think of one solution more like “the easy way out” that can definitely lead to new problems and get you in worse trouble than when you started.  Rob talks about that first.

Debt Consolidation: The Easy Way Out

FaithFi | May 9, 2022

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