Why Debt Consolidation Is A Trap (And What To Do Instead)
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Debt consolidation. Is it a magic mashup to fix your debt problems? Or is it more like that friend who sells unregulated supplements? No, Eric, I don't have time for a quick chat about my microbiome health. And that's a gutsy sales tactic, pun intended. Solid wordplay. Go on. I won't bury the lead here. I'm not a fan of debt...

consolidation. That being said, there is one circumstance where it could make sense to consolidate your debt. And we'll talk about it in today's video. And I'll show you a much better way to get rid of your debt for good. But before we get started, click those like and subscribe buttons and don't do it for me. Do it for your gut health and take a probiotic while you're at it and squeeze a Go-Gurt. Go squeeze a Go-Gurt. I'm on it. Okay. In case you haven't heard a gazillion debt consolidation commercials like the rest of us, here's the TLDR.

debt consolidation is basically rolling multiple debts into one big loan. So instead of a bunch of different due dates, you have one bill to focus on, which might sound kind of nice. But here's the kicker. You're still in debt and you're not actually paying less. Most of the time, your new loan comes with added fees, a longer repayment period, and a higher interest rate. So you're basically just rearranging the chairs on the Titanic. And at the end of the day, the ship's going down and Rose ain't scooting. But I still see a ton of ads out there aggressively pushing this product. You

You even hear it on CCM radio stations. In fact, it might be the only thing they play more than Lauren Daigle. Because she's an icon with the voice of an angel, bro. And even legit news outlets can push debt consolidation in a sneaky roundabout way. Like this article I saw from CBSNews.com. Here's the headline.

Six crucial questions to ask before consolidating your credit card debt. Now, I do like that they're at least implying that it's not right for everyone and that you should pause and ask yourself some questions first, but it's just not the most solid financial advice. And I'm going to show you what I mean. Here's the first question they say you should ask yourself.

What is my credit score? Now, if you know me, you know that I'm not a fan of credit scores at all because it's part of a system designed to keep you in debt and you can live a great life without one. I even bought a house without a credit score. If you wanna know more, I'll drop a link in the description below. Anywho, when it comes to debt consolidation, your credit score does affect the interest rates and terms you'll be offered for a debt consolidation loan. But here's the deal. Whether your score is good or bad, it's not the golden ticket to getting out of debt. So this question is about as pointless as pockets on baby clothes.

What are they supposed to put in there, a single Cheerio? What are we doing with this pocket? It's not cute. Just get rid of it. Next question in this article, how much can I realistically afford to pay each month? Now, I know you don't want to hear this, but this is exactly the question that got you into this pickle in the first place. You told yourself you could afford all the payments instead of focusing on affording it in full with zero payments. So this is a terrible question to focus on. But don't worry, their next question is a much better one.

Question three, what are the total costs associated with debt consolidation? All right, now we're making some sense. And this is really the first question you should ask.

The article goes on to say, quote, And this time they are spot on. Debt consolidation usually comes with fees and higher interest rates. So all it takes is some quick math to show you how bad of an idea it really is. And while you're counting the costs, don't forget to factor in the risks. For example...

If you're doing a home equity line of credit or a HELOC, you could literally lose your home if you don't make the payments. And I don't know about you, but that's a risk I am not willing to take.

Question four, how long will it take to pay off the consolidated debt? Okay, not a bad question because it's related to the total cost of the loan. Debt consolidation might give you a longer repayment term, which could mean lower monthly payments, but it could also mean paying more in interest over time. And remember, we're more focused on the total cost than the monthly cost. So get rid of this debt as fast as possible

instead of dragging it out well into season 48 of "Survivor." And don't just assume that you can pay it off early to save money, because some companies charge penalties for paying off your loan early, which is insane and yet somehow totally legal. Question five: What type of debt consolidation is best for my situation?

Don't love this question because it implies there is a type of debt consolidation that's good for your situation without really knowing your situation. But just for kicks, let's take a quick look at three types of debt consolidation and I'll let you decide if they sound like a good idea. The first type, a debt consolidation loan. This is a personal loan that combines multiple debts into one monthly payment. These come with an extended payoff date, fees, and often higher interest rates. And sometimes you have to put your car or home up as collateral. Hard pass on that.

The second type, a credit card balance transfer. This is where you get a new credit card so you can combine all your other credit card debt into one monthly payment. This method also comes with fees and often a huge spike in interest, not to mention one more credit card to worry about. And by the way, maybe another credit card isn't the solution to your other credit cards. Big brain thinking.

The third type, a home equity line of credit, aka a HELOC. This is a secured loan where you borrow against the equity in your house to pay off your debts. Think of it like a credit card attached to your home equity. You'll be giving up the portion of your home you actually own and trading it for more debt.

Plus, your home becomes collateral. And again, you can lose your home if you don't pay. I don't know about you, but those options suck harder than a Dyson V15. And that thing's got 240 air watts worth of suction. Not to be messed with. Now, there is another kind of debt consolidation that might actually make sense under the circumstances. But first, let's talk about when it makes sense to keep your personal info away from spammers, scammers, and creepy stalkers. And that is...

always. And our sponsor, Delete Me, makes that process easy. They find and remove your info from hundreds of data broker sites, and they send you a report showing you where they found and removed your data and how much time they've saved you, which is more time I can spend researching vacuums. So help protect yourself from the risks of online scams and data breaches with Delete Me. And right now, you can get 20% off by going to joindeleteme.com slash George or click the link in the description. And before we get back to your debt, let's talk about your savings.

If you're stashing cash for a car, a down payment on a house, or a Dyson V15 detect, your money should be working for you. And for that, I recommend a high-yield savings account like the one offered by Laurel Road, another sponsor of today's video. With their high-yield savings account, you'll get competitive top-tier rates. And that means you can grow your savings faster while keeping your money accessible for when you need it. Plus, there's no minimum balance required to open an account.

Your deposits are FDIC insured and there's no hidden fees. So make your savings work harder for you by going to laurelroad.com/george or you can just click the link in the description below. Okay, so the last question this article recommends asking yourself before debt consolidation, what are the alternatives to debt consolidation? Now we are finally getting somewhere. This is the question to ask and I just so happen to know the answer. The best alternative to debt consolidation is the simple debt payoff hack I'm about to show you. It's proven to work and it puts you in the driver's seat.

Here's how it works. First, you're going to list your debts from smallest to largest balance, regardless of the interest rates. Now, make the minimum payment on everything but the little one and attack that little one with a vengeance, with all the margin you can find selling stuff, spending less, whatever it takes. Once that smallest debt is gone, take all the money you were paying toward it and apply it to the next smallest debt. Keep doing that until every single debt is gone and you're completely debt-free.

And here's why this is so powerful. The more you pay off, the more money you free up to throw at the next debt. So you're gaining momentum, kind of like, I don't know, a dead snowball. Bada bing, bada boom. It's metaphorical! Yeah!

This is basically a psychological hack that keeps you motivated to do what you actually want to do, pay off your debt for good, not just move it around. Those small wins can help keep you going until you're completely debt-free. And you can start that without reaching out to some sketchy debt consolidation company. So why would this not be included in the CBS News article? Well, it might have something to do with...

Look closely at the ads on this page. Debt consolidation companies are paying them for leads. And here I thought CBS was one of the last bastions of trustworthy news sources. But hey, I guess you got to find some way to pay Jeff Probst for hosting the last 47 seasons of Survivor. The man is a legend. I think I'm speechless. But before you get mad and vote me off the island, let's get back to our question from earlier. What is the one situation where it makes sense to consolidate your debt?

Well, the only time I tell you it's okay is when it comes to student loans. But even then, it may not be the best choice for everyone. In fact, only federal student loans can be consolidated through the Department of Education. And while it may be free to consolidate your student loans, you likely won't get a lower interest rate. Here's why.

Your new interest rate will be a weighted average of your current interest rates, so it's not going to help you a ton. But if one of your loans has a variable interest rate, it might be worth consolidating to trade that for a fixed rate, meaning it'll stay the same for the life of the loan. We like that. So only consider student loan consolidation if it's free to refinance, you can get an equivalent or lower interest rate, you don't sign up for a longer repayment period, and you won't lose motivation to pay off your debt. And any other kind of debt consolidation, steer clear.

clear. Look, I know debt consolidation can sound tempting, but trust me, it's not the fix you need. You've got to put in the work to change your habits and pay off your debt for good. Which means, debt consolidation, you're out of here. Go home. Keep watching this next video to see why the debt snowball method is hands down the best way to pay off debt, or click the link in the description below. Thanks for watching. Now grab your stuff and head back to camp.