Dave Ramsey says debt consolidation doesn’t solve anything. Is he right?

By | August 6, 2022
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Don’t rule out this debt-paying strategy just because Dave Ramsey doesn’t like it.


Key points

  • Dave Ramsey says that debt consolidation doesn’t solve the real problem, which is your financial behavior.
  • While financial habits are most important, debt consolidation can also help.

Debt consolidation is a common recommendation for those trying to get their debt under control. If you are unfamiliar with how debt consolidation works, get a new loan or credit card and use it to repay all your debts. Then you only have to pay for one month, possibly with a lower interest rate.

It may be popular, but there is one financial personality who is not a fan. When a reader asked Dave Ramsey if debt consolidation is a good way to get out of debt, his answer was an unequivocal no.

So, is debt consolidation worth a try, or is Ramsey right? Let’s find out.

Why Dave Ramsey Is Against Debt Consolidation?

Ramsey’s argument against debt consolidation is that it gives you the illusion of progress without actually doing anything. As he puts it, “It makes you feel like you really did something to change your entire financial outlook, when you didn’t.”

The thing that puts you in debt in the first place, according to Ramsey, is your financial habits. That’s why he thinks it’s important to change those clothes.

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When you consolidate debt, you may have a lower monthly payment. You certainly have fewer payments to process. But according to Ramsey, that’s just shifting the same old blame around. You failed to address the real problem, which is the behavior that led to your debt.

What Ramsey is saying is that getting rid of debt is a matter of sticking to a strict budget and learning new financial habits. He has a point there, at least with debt caused by overspending. However, it is not fair to say that this is the problem for everyone. There are many problems that can cause debt, some of which are not completely under control, such as medical problems or a sudden loss of income when living from paycheck to paycheck.

In general, however, it is true that getting out of debt is primarily about following proper financial habits. But like many of Ramsey’s opinions, his stance on debt consolidation is extreme.

Debt consolidation can take your repayment plan to the next level

In his reply to a reader about debt consolidation, Ramsey wrote that “interest rates are not the problem, and the number of payments you face is not the problem.” Maybe so, but all things being equal, most people would probably take a lower interest rate and fewer monthly payments.

Those are both a possibility with debt consolidation, at least if your credit score is high enough. There are two popular options:

  • Balance transfer credit cards offer a 0% intro APR on credits you transfer. The introductory period can last 18 months or longer with certain cards, giving you quite a bit of time to pay off what you owe.
  • Debt consolidation loans are personal loans that are intended to pay off existing debt. This gives you a fixed payment term, with lenders normally offering terms between 24 and 84 months.
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Ramsey is right that there is no trick to paying off debt. If you spend more than you earn, you get into debt. If you consolidate that debt and then continue to spend more than you earn, you’re not making any real progress. Your now consolidated debt will grow and you will come back to square one.

The key is to cut costs and put as much money into your debt as possible. And if you do, debt consolidation is a great way to speed up the payout process.

To prove, let’s say you have $5,000 in debt spread across several credit cards, and you can pay $300 a month for it. You could pay that off at an APR of 18%. Or you can move it all to a balance transfer card with an intro APR of 0% for 18 months. Here’s what the difference would be:

  • Without debt consolidation, your debt would cost you $5,797 and be paid off in 19 months.
  • With debt consolidation, your debt would cost you $5,150 (the original amount plus a 3% balance transfer fee) and be paid off within 18 months.

Debt consolidation won’t do the job for you. You still need to make those monthly payments and avoid new debt. But it can help you pay off your debt faster, reduce your number of monthly payments, and most likely save you some money on interest.