Debt consolidation might be the worst move you've ever made

Debt consolidation sounds like a good thing to do, right? You've got all your credit cards lined up, and keeping track of the bills and their payment dates is no fun. How much do you pay on this card? What about that one? Did you miss the other one?

So consolidating that debt, either with a home equity loan or some other type of loan, seems like a great idea, right? You get one bill and your burden seems much lighter. But here's the problem: Many people don't have the self-discipline to stop using the credit cards that got them in trouble in the first place.

You start out by thinking you'll just charge the groceries this week and will be sure to pay off that bill. Then your car needs new brakes, and you weren't planning on that expense, so you get out the credit card again to help you in a pinch. But little things like this keep happening, and before you know it, you've got a few thousand dollars on the credit card.
The fact is that debt consolidation doesn't make you a better money manager overnight. It is really just a band-aid for a bigger problem. I've seen plenty of people do multiple home equity loans to clean up credit card debt over and over, and they never learn their lesson about their credit cards. The debt consolidation was meant to help them get out of debt, but instead, they've got more than ever before.

Does that mean you should avoid debt consolidation all together? No. There are reasons why it makes sense, particularly if you're able to consolidate at an interest rate that will save you a lot of money in both the short-term and long-term. Just don't look to debt consolidation as the answer to all your problems. If you do consolidate, get yourself some education on financial management along with that, so that you'll become more responsible with your budgeting and spending. That's the best way to secure your financial future.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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