Debt consolidation is just part of the strategy

If you watch late night television, you will often see advertisements for companies that promise to get you out of financial trouble through debt consolidation. The promises are alluring; a consolidation loan will allow you to replace all of your existing financial obligations with a single loan. You won’t have to worry about various deadlines each month; you just pay a single bill that pays for all of your debts. You can even save money if you obtain a lower interest rate. It all seems like a win-win situation. Who wouldn’t want to take part in that?

On the surface, debt consolidation does seem like the perfect solution to the problem of too many bills and not enough money. Despite advertising to the contrary, debt consolidation is only part of the solution. If you ignore the rest of the solution, you may see no benefit to consolidation, and you might even end up worse off than before.

For many consumers, the problem of owing too much money is one of a lack of discipline and a lack of financial education. Fixing the problem by paying off the debt is not going to help someone who compulsively spends more money than they earn, nor is it going to help someone who doesn’t understand late fees or how interest compounds. Paying off the debts is part of the solution; the full solution involves education and counseling.

An experienced credit counselor can fully assess an individual’s financial situation. He or she can examine the debtor’s financial history for clues as to how the debtor got into the situation in the first place. Armed with that information, the counselor can see how best to help the debtor over come the complete problem, which is one of overspending. Getting the consumer out of trouble is nice, but keeping the consumer out of trouble in the future should be the primary objective of both parties.

Such education is part of the overall package which many credit counseling services can provide. Such agencies may be able to offer access to loans, but their primary function should be to help the consumer learn where he or she went wrong, explain the situation in terms that the consumer can understand, and offer solutions as to how the problem can be avoided in the future. Getting out of financial trouble is an admirable goal, but the big picture involves staying free of financial burdens.

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