Carol Wrote Me And Asked “Would You Advise Debt Consolidation?”


“Dear Steve

We are in debt up to our eyes. We are not behind in anything. We didn’t want to get to that point. We were denied financing our house for a longer period of time–our debt to credit ratio wasn’t good enough. However, we didn’t want to borrow any extra money.

Would you advise a debt consolidation?


Dear Carol,

You ask a very good question. It is double-edged sword to be current on your bills but unable to make any progress and barely hanging on.

The problem is that while you may have a really good credit report and credit score right now, servicing the debt leaves you in a dangerous life position.

And I’m not all that certain how good your credit score and credit report might really be at this point since you are maxed out and your debt to income ratio is evidently bad already.

So what does it really mean to be just making it from month-to-month? It means that your future labor is already pledge to pay for bills each month. You see, in order to pay for debt we have to convert work into currency and then use that currency to pay our bills.

Bills don’t care if you hate your job, you get sick, the kids get sick, you need a break, you want to take a trip, or the EGR valve on your car goes. When you are in debt “up to your eyes” a significant part of your life is no longer yours. It is pledged and promised to your creditors. Technically I guess you could say that you are a slave to your creditors.

Debt is just a thing but it is what that debt does to our lives where the problem occurs. Excessive debt creates stress, tension, fighting among friends and lovers. It creates depression and reduces our hope for tomorrow or enthusiasm for life. And it’s one life, that’s all you get. Your life, that one life is what you make of it and if that has become painfully serving debt and making it from month-to-month there is one simple way to instantly change your life to give you freedom with minimal stress, pay the debt off in full or put into place a longer term plan to actually eliminating your debt instead of just servicing it.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

Making it from month-to-month does not have to be the norm. There is a significant percentage of people and families that own their own home but owe no mortgage, who own their own car but have no car payment. It does not have to be normal to be “in debt up to your eyes.” I’m just saying, once this situation gets resolved, there are other options for your future.

So Carol, what do we do with your situation? You asked about debt consolidation, it is a possibility, but any approach other than paying your bills every month as promised or in full is going to negatively impact your credit report and credit score.

If you can value your future and your life more, and find gratitude in what you do have, well then maybe your credit score and credit report are not as important as breaking free from debt.

There are several paths to consider in your current situation:

  • Credit Counseling – You could go into a credit counseling program where creditors may reduce your interest rate you pay and possibly lower your monthly payment. Take a look at what I previously wrote about credit counseling and consider that as my disclaimer.
  • Debt Settlement – A debt settlement program may work if you have a lump sum of money to use to pay off the debt for less than you owe. If you enter a debt settlement program and they encourage you to make monthly payments into a fund until you can accumulate enough to settle your debts, watch out. Most people are not prepared for the collection calls that will occur in that approach.
  • Bankruptcy – I usually mention bankruptcy because it is always a legal tool that you can use to either put together a binding repayment plan (Chapter 13 bankruptcy) with your creditors that you can afford or discharge your debt completely (Chapter 7 bankruptcy). You owe it to yourself to speak to a bankruptcy attorney or get a free bankruptcy review as part of your information gathering homework.
  • Debt Snowball – The debt snowball approach is just a good way to keep you motivated to paying off your debt if you have some extra money to devote each month above making just the minimum payments. The debt snowball approach works and is a viable option if you have the patience.

Carol, I’m giving you homework. You must go out and research these various options and only once you have examined each option and gathered the facts, will you be able to make an informed decision about what is best for you and your family. Don’t rush to a decision, investigate it. Don’t be ashamed about your situation, you and millions of others are in the very same position. I was once.

For you this is all personal and strikes at the core of your self-esteem and self-worth. For your creditors you are yet just another number on a screen and the only reason a creditor might pretend to judge you is to use it as collection pressure.

Finally, as bizarre as this may sound, as long as you are current on your bills your creditors don’t want to lift a finger to help you. You are in exactly the position they want you in, maxed out, trapped with them and making the minimum payment. You see the minimum payment results in maxim profit for the creditor. Maybe we should change our terminology and call the minimum payment the Maximum Profit Payment from now on. I like that!

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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