A large percentage of the calls that I get are people looking for advice on debit consolidation programs.  People seem to think that they’re some sort of silver bullet that will magically make their debit quickly disappear, and they’ll come out on the other side healthier and wealthier.

This couldn’t be further from the truth.  As a matter of fact, in many instances people who are not ready to drastically change their lifestyle come out in worse condition that when they entered the program.  Think about getting a big loan that pays off all the rest of your debit, then racking up the same amount of debit 9 months later.  Now you’re in the same position you were a year ago, except you have another big payment on a consolidation loan that you never should have gotten in the first place.

What I usually do is ask people to come into my office and sit down for a financial planning session.  Nothing formal, just a chat to find out what their situation is, and see if they’re a good candidate for a debit consolidation loan.  Things I’m looking for are a willingness to change, attachment to expensive personal property, lifestyle, and circumstances that lead to the debit problems in the first place.

People who have jumped from credit card to credit card, wracking up debit and moving on to the next one when the previous one is maxed out are not good candidates unless they’ve already shown actual progress towards changing their lifestyle.  That means living on a budget, cutting up their cards, selling expensive assets and so on.  If people haven’t already show this willingness, they’re more likely to just treat the consolidation loan as another source of credit and fail to pay that off as well.  The money that they save in monthly payments will just be transferred to another maxed out credit card’s minimum monthly payment, and the cycle will continue.