A debt consolidation equity loan is one of the most touted financial products on the internet (not just on the internet, but it’s pretty rampant here). Why is this so? Because so many people are up to their eyeballs in debt. They get paid, and creditors take the majority of their paycheck.

The most common reason people have too much debt is because they are not living within their means. It’s a recipe for disaster. If your credit card balances are ever-growing, you are spending more than you make - period.

So after a few years of this obnoxious behavior, you take a look at all your different credit card statements, car payments, house payment, etc. and you realize that you’re a bit tight on cash flow - to put it nicely. Why? You might have even experienced a raise or two. Why is money so tight? Because your debt’s aggregate required minimum payment is now so high (along with nasty interest rates), that it’s sucking away your money before you ever even get to see it.

You’re in deep, deep debt.

So you head out onto the internet to find out how you can handle your debt problem. You probably run into a site like this that teaches you all about credit, refinancing, getting loans - all from professionals - and everything to do with debt.

Quite artfully, you’re talked into one of the biggest CONS of our age: debt CONsolidation, usually in the form of an equity loan. I love this line in the “Debt Consolidatioin” forum description: “Is Debt Consolidation good for you? It is however the most popular method to get debt free.” I’m not sure exactly what they mean by “however” but I loved the second sentence:

Debt consolidation is the most popular method to get debt free.

As a rebuttal, please allow me to quote one of my favorite debt crusaders, Dave Ramsey:

“Debt CONsolidation-it’s nothing more than a con because you think you’ve done something about the debt problem. The debt is still there, as are the habits that caused it; you just moved it! You can’t borrow your way out of debt. You can’t get out of a hole by digging out the bottom…I feel debt is the symptom of overspending and undersaving.” (emphasis added)

- The Total Money Makeover

It gets worse though. As Ramsey suggests a bit further on page 48, the debt CONsolidation is “appealing because there is a lower interest rate on some of the debt and a lower payment.” What you discover however, is that it’s not because the rate was negotiated down, it’s because the length of the debt was extended. In short, this means you’ll be in debt longer, most of the time paying even more interest.

I also discussed the illusion of debt CONsolidation here.

The only time debt CONsolidation would possibly be an option is if you have totally changed your habits. If you haven’t used credit cards for at least one year, you’ve been attacking your debts with intensity, and you have a good handle on how you manage your money. Only then could I maybe say it would be okay for you to go ahead and get a lower interest rate. This is, of course, under the presumption that you would continue to pay the same amount toward your debt that you had before. This little maneuver, remember, has not gotten you out of debt. It has only saved some interest.

The most important thing to do when faced with the option of debt CONsolidation equity loans, is to walk away and mull over it for a while. Have you really changed your habits? Are you getting out of debt already? Are your balances already on the decline? Are you budgeting?. Lest I repeat myself a third time, I won’t say it again.

But just one more little hint: 99% of the time, debt CONsolidation equity loans are just that CONS. Avoid them. Whittle away at your debt the old-fashioned way: blood, sweat, and tears.