It is amazing! The advertisements come through like a gift from somewhere. It sounds too good to be true. And that may be the problem, it may not work and it may not be true, or at least not entirely true. I am writing about debt consolidation, a debt release “product” that is highly touted in advertisements on the TV and Internet.

One advertisement admits that there are no quick fixes, but still the company still claims debt consolidation can:

  • Lower your interest rates,
  • Lower your monthly payments,
  • Protect your credit score, and
  • Help you get out of debt faster.

There is at least an ounce of truth in those pounds of claims. But if you aren’t wise as you face off your creditors and your many debts, you could end up in worse financial condition and with even greater debt.

2014 Gallup survey, shows that while Americans have backed off slightly in reliance on credit cards, the average American credit card holder still has 3.7 credit cards. The average borrower carries over $5,000 in credit card debt. That usually is on more than one card and very often there are other debts as well, such as a car loan or lease, student debt and a mortgage. In fact, a recent study by the FINRA Investor Education Foundation shows:

  • Almost 40 percent of people responding have home debt, such as a mortgage or a home equity loan or both;
  • Nearly 20 percent of people have some type of medical debt;
  • Almost 80 percent have at least one of the six types of debts measured in the study; and
  • 47% of credit card holders carry a balance at least one month.

The survey indicates people feel better today than in 2012, but still approximately a quarter of Americans have avoided some kind of medical service in the past year due to cost concerns; their finances are that tight. Under those circumstances, it is easy to see why debt consolidation looks like a viable alternative.

There are problems with using debt consolidation alone as a strategy and it is a road to ruin if the dangers are ignored. Without wisdom, the source of which is always God, a debtor faces potentially overwhelming challenges. Among those are the following:

1.    The heart of the problem is the problem of the heart

Money is not a blessing, it is a tool, nothing more. It is not to be loved; instead, it is to be feared. What got you into debt? It wasn’t money and, believe it or not, it wasn’t a lack of money. Instead it was a lack of proper respect for the power of debt. Most debt consolidations occur with debts of more than $10,000 and many occur with debts that are significantly higher. How did that much debt build up? If you can’t answer that question in a way to assure that after consolidation, you will not incur more debts, then consolidation is nothing but a band aid on a would that requires stitches.  Sizeable debt built over years happened perhaps for reasons that will cause it to reoccur.

Learning financial responsibility and Godly handling of money should be an absolute prerequisite to viable debt consolidation and good debt management. How? Idlewild Baptist Church (and many other churches) offers financial counseling. God gave us over 2,300 verses in the Bible on management of wealth, money and possessions. It would be beyond reckless to ignore the wisdom of our Creator and assume the world has a better way.

Idlewild Baptist Church offers a Dave Ramsey Financial Peace University course twice a year, every year and also offers financial counseling through its stewardship ministry. If it is a non-church source you want (however, it is a mistake not to at least try God’s plan first!), a credit counselor, money coach or financial adviser can review your spending over the past few years and help you spot problems falling into the categories of clear mistakes, questionable financial behaviors, uncertain financial moves and good practices. An objective third person standing outside of your subjective viewpoint might very well spot budget problems, out-of-balance spending, and more.

Ultimately, your goal is far more than a financial band aid, it is a financial transformation. You need to replace your old habits with new ones, track spending on a regular basis, establish financial priorities and learn the differences between your needs and wants.

Quite frankly, if the problem of the heart is not solved before consolidation, then consolidation will simply open up the opportunity for more debt.  That creates a vicious cycle that will end in failure.

2.   Research before consolidating

There are two areas of research you need to do. One  is inward and the second is outward. First, examine yourself and your financial situation. The average consumer has an average balance of $5,551. Make a list of all your creditors, all of the balances, all balances that are past due and your payment history. Stop charging with any credit cards and stop borrowing money. Why add to an already overwhelming problem?

The second area of examination is outward. Assuming you are counseled and you have come to the conclusion that consolidation will help and is necessary, look before you leap. Realize first that just because you believe it might help, doesn’t make that true. Consolidation should be just one-step of a multi-step process. Start with a debt management plan, next, consider a debt consolidation loans and, if necessary, come up with a debt settlement plan. 

If consolidation remains as a viable alternative, you still have many choices to make. When thinking about how to get rid of debt, it can be helpful to consider different repayment strategies. There are different ways to consolidate debt. You may commit to a loan, either secured or unsecured, transfer outstanding debt onto a new or different line of credit or account, or pool your debt on a new credit card obtained with the lowest possible rate for transferring the balance from other cards. To help with at least one of the alternatives, a home equity loan, you would be wise to review the updated article’s website about Dave Ramsey’s stance on home equity loans. The article discusses Dave Ramsey’s position in its article entitled What Does Dave Ramsey Think About Home Equity Loans. The article fairly discusses the pros and cons of Dave Ramsey’s position. You may end up confused or uncertain about what course is best. If so, give us a call and we will help.

Debt management and debt settlement plans are also options. A debt management plan is an agreement between you, your creditors and a credit counseling organization chosen by you. Your credit counselor works with creditors to consolidate the full amount of your loans at a lower interest rate or for a longer repayment period (a period of years) or both. You make your payments to the agency and usually pay a small fee. This can lower the monthly payment, but there is no guarantee.

Debt settlement is the practice of paying a negotiated lump sum to settle a debt for less than the amount owed. Debt settlement companies negotiate with creditors and charge a fee to you. Often that fee is a percentage of the amount of debt that is forgiven.

You must realize though that every option has advantages and disadvantages. Debt settlement can have major negative impact on your credit standing and that effect can and will linger on for years. So will bankruptcy and getting behind on payments. Debt settlement companies have a bad reputation and many have earned it. Debt settlement is a tough industry with quite a number of operators who will leave you in worse shape.

Watch out for consolidation proposals that carry a hefty up-front fee, sometimes called an origination fee (which may be illegal). One of the worst traps is a transfer to a new credit card that has a low introductory interest rate – that jumps to a high rate after too short a period of time. Rather than just say yes and sign a consolidation contract, at a minimum, run the terms of the contract through a few “what if?” scenarios and try to understand what it is or may cost you. Always ask for success rates and references that you can check. There is power that you have before you sign, it is the power of negotiation, verification and comparison. Once you sign, that power is lost.

When in doubt (and you should always be in doubt when you are deeply in debt), look for agencies accredited by either the National Foundation for Credit Counseling or the Financial Counseling Association of America. Accreditation with those two businesses means that their counselors are certified. Start with either of those websites for referrals that are somewhat better starting points.

If the decision is to pay off rather than consolidate, there are not too many options. Here are the three most obvious.

3.   Start with the highest interest debt

You have already made a list of your creditors and one of the details you listed was the interest rate. If the creditor is a credit card company, the rate is high, far too high! Find the creditor with the highest rate and focus every extra dollar you have on paying it off. When that creditor is paid off, cut up the card, close the account, and move to the one that has the next highest interest rate.

From a purely mathematical sense, this may make the most sense. But if that account also has a huge balance, it may seem like you will never reach the goal – and that is only the first account! That is why some counselors, including debt hating Dave Ramsey, suggest the next option.

4.   Start with the smallest balance debt

This is primarily a psychological approach.  Dave Ramsey proposes what he calls the debt snowball. Whether you take Financial Peace University or try a different system, when you start with the smallest balance first, you get to see that you are making headway against your debts as they disappear.

But as you finish with that smallest creditor, cut up the card if it is a credit card debt, close the account, and move to the next smallest debt. You get to see the progress faster and some counselors believe  you are more likely stay committed.

5.   Start with fewer payments – consolidate high interest debt

This may cost more in the long run (but that isn’t certain, see section 2, Research before consolidating, above), but it has the advantage or reducing the number of payments and may very well reduce the monthly payment although that will likely result in a longer payment plan.

Is the third option is where you end up, read on!

6.   Consolidate debt carefully

Do the math, or make sure your counsellor does the math. It simply makes no sense to consolidate a low interest rate loan into a consolidation loan at the same or even a higher interest rate. It might reduce the number of payments you make but raise the cost of the consolidation and increase the long-term payout by you.

Always require the person proposing consolidation to show you side-by-side comparisons of before, during and after monthly and total payments. Requiring that will help you avoid walking into unnecessary transfer fees, origination fees and interest charges. Be sure that you get a copy of any comparison spreadsheets because you never want it to be just your word against a salesperson/counselor.

7.   Don’t lower your guard

Once you are on the road to financial recovery, always remember what got you where you are.  Do not relax or think there are no speed bumps ahead.  There are.  Start saving and planning for your financial future. Don’t forget that the marketing that tricked you into going into debt is still there, and getting better and better at convincing people that debt is good.  It is – for the creditors. Take a Dave Ramsey Financial Peace University course.

One of the best bits of advice you will get in Financial Peace University is to cut up your credit cards and close the accounts. Even before that you will hear about starting an emergency savings fund and budgeting. Don’t think you can’t make the same mistake twice, you can. If you insist on keeping a credit card, make it one with a low credit limit and refuse any offers to give you a higher limit.  “No” is a great discipline.

Please remember that you still have a long way to go to pay off your debt. You may be writing fewer checks and feeling less stress, but that is a long way from being debt-free.

8.   Focus on the Future

Click over to a series of articles offered by The Idlewild Foundation to help you start exercising Biblical stewardship. These include:

It’s Time to Start Saving

Ideas for Living Better Through Stewardship

Your Financial Future by the Decade

Once the debt is gone, Biblical stewardship and wisdom will allow you to save for the near future and eventually for the more distant future, your retirement. Budget, spend wisely, save and you will find that while life will always present challenges, you can indeed see that God has for you a hope and a future just as He promised His people:

Jeremiah 29:11
11     For I know the plans I have for you,” declares the Lord, “plans to prosper you and not to harm you, plans to give you hope and a future.


Don’t ever lower your guard. The strength of American marketing and the cleverness of sales people is enormous and should never be underestimated. We are not strong and invincible. We are, quite naturally weak and very susceptible to temptation. And we are weak so we should turn to God. Even so, God always provides a way for us to handle our challenges. 1 Corinthians 10:13.

About the Author

John Campbell

John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus.  He began serving as the Executive Director of the Idlewild Foundation in 2016.  He has been married to the love of his life, Mona Puckett Campbell, since 1972.