139: Is Debt Consolidation a Scam?

Hey, I'm Chris.

I'm a former Analyst, Podcaster, and Producer. My goal is to help you understand your finances better in about the time it takes to make a bag of popcorn!

Debt consolidation is one of those topics that makes me nervous. It can be a useful tool, but is also full of traps. Today’s guest Leslie Tayne is here to walk us through some of the pros and cons.


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Meet Today’s Guest – Leslie Tayne

Financial Debt Resolution Attorney and Author of Life & Debt Leslie H. Tayne of Tayne Law Group, P.C. has 20 years’ experience in the practice area of consumer and business financial debt-related services.

Connect with Leslie at https://taynelaw.com

So, is debt consolidation a scam?

So the first thing that you should be aware of is what is debt consolidation. Debt consolidation is a pretty generalized term to encompass a couple of different programs or even loan services.

So the first thing you need to be aware of is what is the debt consolidation that you’re looking at. As far as the con side, sometimes I too am skeptical, given the number of years in practice I have in debt resolution.

Number one con side of that is it doesn’t actually get rid of your debt. It actually moves your debt from one type of product into another. So what that means is that if you have credit card debt and you’re trying to consolidate it and you’re putting it into a loan so that you reduce five payments into one, you haven’t actually gotten rid of the debt. You’ve just transformed it from five payments into one. Now that might be your goal and that might work for you. But the reality is if you’re looking to get rid of debt, then that would not be necessarily helpful.

Okay. So that’s important to know. This is not getting rid of any of the actual debt you have. It’s just more so making it more convenient by putting it in, you can say, one package versus multiple lines of credit that you might have sitting out there.

That’s correct. It definitely makes things more convenient. That would be a positive and it could reduce your payment or your interest rate.

So those are some positive features to it. But the first thing that anybody has to do when they’re looking at a debt consolidation program is go to yourself and ask yourself, “What are your goals?” If your goal is to eliminate your debt, that may not be the best route. If your goal is to make things more convenient, then that might work for you.

What is something else that people should look out for when they’re looking at these debt consolidation programs?

So there’s a lot of fees when it comes to debt consolidation, loans, and programs. So when you’re looking at a loan, and very often you have to be careful because there could be advertising or information that you’ve read about a debt consolidation program that is really simply either a bankruptcy, or it is a loan. And if that’s not the product that you’re looking for, then you should definitely move on.

So be careful. Read between the lines. Don’t be afraid to ask questions. Ask a lot of questions. There’s nothing wrong with that, and anybody that you’re speaking to you about a product or service related to finances should be eager and happy to answer any of your questions.

Keep in mind that it’s not a one size fits all. So even if it worked for your cousin, your brother, your uncle, your neighbor, that doesn’t mean that that program is right for you. Debt programs and debt resolution and financial decisions are individual. There’s so much like your DNA or your a fingerprint. No two are really the same, and that means that you have to decide what’s best for you, what’s gonna work for your situation and short and long term financial goals.

Could you give us a couple other pros that there might be to doing some type of debt consolidation?

Another benefit is a fixed interest rate. That means it’ll remain the same for the entire time. One paying, since you’re putting all your accounts into this one payment, you potentially could have a lower payment and a shorter payoff period.

Remember if you only make the minimum payments on your credit cards, you can be paying that from 28 to 32 years. You might find a debt consolidation loan or program that reduces that considerably. So those are definitely some potential benefits as far as the pros of a debt consolidation process.

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