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How Debt Consolidation Is A 100% Scam (5 Ways)

"The only man who sticks closer to you in adversity than a friend is a creditor." - Unknown

"Better to got to bed hungry than to wake up in debt." - Proverb

 

I just helped rescue one of our newest students from plunging head first into a debt-consolidation “arrangement”.

And I say rescue because, as a financial coach I’ve had to help countless students salvage their financial lives after getting involved in one of these SCAMS.

And yes, I’m using a strong word, SCAM because I’ve personally seen the carnage this kind of an arrangement can cause in the lives of our most financially vulnerable students.

So today I’m going to unpack the whole subject for by asking the question:

  • What is debt consolidation and how does it work?

 

And then by addressing what I call “The 5 Landmines Of Debt Consolidation”

1. Debt Consolidation Is Just “Kicking The Can”

2. Consolidation Is Not Elimination

3. Statistically, Debt Consolidation Keeps You In Debt Longer

4. The “Consolidation Interest Rate” Opacity

5. Who’s Actually Responsible For Making Your Payments?

 

Looking for a way to get started on your own debt-free journey? Check out my: 

 “Debt-Elimination Quick-Start Guide”. This free resource will have ALL the tools, forms and printables you’ll need while moving through this 30 day challenge.

 

  

Hey friend, it’s Brad Long here with ZeroDebtCoach where we help 5 and 6 figure corporate burnouts escape their nightmare by teaching them how to effectively: 1) organize and optimize their financial lives, 2) eliminate debt and 3) accelerate toward financial independence by starting and growing an online business.

 

The Lure Of Debt Consolidation

Believe me I get it. Debt consolidation can seem like a MUCH needed pressure release when you’re over your head with financial stress OR like with many of our students, you’re in that home stretch of paying off some of your largest consumer debts.

BUT like I mentioned earlier, debt consolidation is wrought with very complex pitfalls that can be so cleverly hidden by the “debt consolidation industrial complex” that it really takes either: 

1) An extreme level of proactive financial acumen to be able to see them OR

2) A deeply unfortunate learning experience that almost always ends in financial disaster.

I want to help you avoid the latter by giving you the “things to look for” of the former.

 

 

What is debt consolidation and how does it work?

Debt consolidation is a process by which a singular company (a debt consolidation company) combines several unsecured debts “for you” and allegedly lowers the interest rate, monthly payment and also allegedly “simplifies” the payment process for you.

The types of debt they usually “consolidate” are unsecured ones like: credit cards, payday loans, medical bills.

Let’s talk about the unseen pitfalls and help equip you with the information you need to avoid debt consolidation altogether.

And as you’ll see, the consequences get progressively worse as we move through the list.

 

1. Debt Consolidation Is Just “Kicking The Can”

First and foremost, debt consolidation does nothing to address the underlying issues of why you’re in this position in the first place. In fact,

"88% of people who pursue debt consolidation continue the negative habit pattern of not budgeting, overspending and go even further into debt." - Dave Ramsey

In other words, the “easy out” presented by the debt consolidation industrial complex doesn’t cause real change in the behaviors you need to change that will ACTUALLY get you out of and keep you out of this position. 

I’ve heard it said that, “Debt consolidation doesn’t remove your debt, it just moves it around."

From that perspective in particular, debt consolidation is really just a “band-aid”.

 

2. Consolidation Is Not Elimination

Again, I know that the idea of consolidation can be a huge (but false) sense of relief and/or progress, but like I said before, it’s really just “kicking the can down the road”.

I don’t want you to do that. I want you to eliminate it completely. 

I want you to face it head on and develop the skills and habits you need to pick up the can and crush it with your biceps!

Stick around to the end of the video for some of my 100% free suggestions on how you can get this process started.

 

3. Statistically, Debt Consolidation Keeps You In Debt Longer

While debt consolidation may look simple on the surface, it actually potentially adds multiple layers of complexity to the process… AND delay to your debt elimination process.

For example, if you work with a consolidation company that also negotiates new interest rates with your creditors, you’ll have to monitor the process and make sure proposals are accepted and that agreements and payments are agreed upon and then accepted.

So, if you think you have a headache in your current “pre-debt consolidation” posture, just think about the prospect of dealing with that mess for 2 minutes.

 

 “Debt-Elimination Quick-Start Guide”. This free resource will have ALL the tools, forms and printables you’ll need while moving through this 30 day challenge.

 

 

 

4. The “Consolidation Interest Rate” Opacity

“Opacity” is just a fancy word for unclear or somewhat hidden. Think of a glass shower door during a hot shower.

When it comes to the “interest rates” presented by the debt consolidation company, you have to read the fine print. 

Many times these debt consolidation companies will lure you in with a lower interest rate that changes after a certain period of time.

Yes, that's right, the interest can change in very much the same way that an adjustable rate mortgage (ARM) can.

Again, read the fine print. Then run away as fast as you can!

 

5. Who’s Actually Responsible For Making Your Payments?

Think about that for a second. What guarantee do you have that the debts that you’re responsible for will ACTUALLY get paid.

If you guessed “none”, you’d be correct.

You're actually having to "trust" that these people will do the right thing and always at the right time.

I don't know about you but that would make me turbo uncomfortable.

Think about how difficult and complicated it is for YOU to keep track of all the contact info and bill payment info of your debt. Do you REALLY want to put that in someone else's hands?

Don’t believe me?

Check out the story outlined below. There are SO many others like it, including new ones I get from students every month.

It's an excerpt from the website: https://hansonattorney.com/blog/debt/debt-consolidation-program-nightmares:

 

"Our second story involves an individual who, along with his wife, had racked up considerable student loan and credit card debt.

Because they were both rising professionals making their monthly payments, they sought out loan consolidation as a way to lower their interest rate and clear up some of their credit balances in order to qualify for financing for a new home.

They signed up for the services of a national debt consolidation company, and immediately started getting calls from creditors about delinquencies. 

In the calls from creditors, some had received faxed settlement proposals and some had not. Some creditors had agreed to the proposals and some had not.

The couple discovered that the debt consolidation company would send faxes to as many creditors as they could (some creditors were left out), and whether or not the proposal was accepted, the company started sending in the proposed payment amount.

The couple had so many troubles with the consolidation company not accepting any responsibility and not changing their tactics, that they had to take matters into their own hands, contact the creditors themselves and bypass the consolidation company all together, which is something they could have done on their own in the first place.

The damage to this couple’s credit history had already been done, however, through multiple late payments or charged off accounts.

The couple’s dream of owning a home are now pushed back for the next 4 to 7 years and they consider their dealings with the debt consolidation company the worse thing they could have done for their financial future.

 

Just Run The Other Way

The part in this story that really drives it home for me is this sentence:

"The couple had so many troubles with the consolidation company not accepting any responsibility and not changing their tactics, that they had to take matters into their own hands, contact the creditors themselves and bypass the consolidation company all together, which is something they could have done on their own in the first place.

The point is they could have done it on their own in the first place. That's what I'm not-so-gently suggesting that you do.

Remember, it's a truism that no one is EVER going to take responsibility for your finances the way you do (or the way you should): not a debt consolidation company, not a bank, not a mortgage company, not even a financial advisor. 

It's my own personal conviction that, using a debt consolidation service would be like turning over control of your whole debt payment scenario to your aging alcoholic uncle who is habitually unemployed, notoriously disorganized, colossally irresponsible and annoyingly forgetful.

Do you really think that's a good idea?

Let me just come out and beg you, please don't do it!

Let's instead focus on getting you out of debt the proven way.

 

They're Smarter Than We Are

The problem with this entire strategy is that most of our students and really most consumers in general don’t stand a chance trying to understand the complexities of what they’re signing up for.

Believe me, the debt-consolidation companies are smarter than we are and they know that people are looking for that pressure release.

And for so many unsuspecting and desperate consumers, this APPEARS to be their ticket. The sad fact is that it is indeed a ticket, but to the destination of much weeping and gnashing of teeth.

Let's give you some options to avoid this for good!

  

Struggling Or Feeling Alone?

Join Our Private FB Group: Zero Debt Tribe

Now, if this decision process is something you struggle with and you constantly feel isolated about, I’ve got some great news for you and it’s free.

Our private Facebook group, ZeroDebtTribe. It’s a group of like minded people that are all somewhere along this P2P/debt-elimination/on their way to FI continuum. So click the image above and apply to join us. :)

 

Call To Action 

So, we’re all about taking action around here, so I wanted to offer you this free little resource that will help you blast through the first few steps of this process. It’s our FREE “Debt-Elimination Quick-Start Guide”.

 

 “Debt-Elimination Quick-Start Guide”. This free resource will have ALL the tools, forms and printables you’ll need while moving through this 30 day challenge.

 

  

How can ZeroDebtCoach help you? 4 ways...

 

1. Subscribe to our YouTube channel and click the notifications bell to make sure you get our new videos every week. 

 

2. Download one of our free personal finance guides. You’ll learn some of the exact strategies I teach my private coaching students on how to organize and optimize their finances, obliterate debt and move on to financial independence by starting and growing online businesses.

 

3. If you’re looking for a community of motivated and like-minded people, go ahead and get on the waitlist to join our private financial coaching community. We only open it for new students a couple of times a year, so make sure to get on the waitlist.

 

 

4. If you need some help right now because you’ve got a burning issue, you need a problem solved, you want to talk through a complex situation, click on the button below.

 

 

All that said, let's keep on building your financial acumen and make this your best year yet!

Thanks so much for reading and we’ll see you in the next video post!

 

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