Does debt consolidation work?

Ask the Expert: What Are The Pros and Cons Of Debt Consolidation?

Question: Last month, you answered a question about whether debt consolidation companies were scams. But you never answered the basic question: Do I even need one of these places? I mean, can’t I do some of this stuff on my own? And what’s the catch? I’ve learned in my 50 years that everything has a downside. Why didn’t you mention it?

— Peter in Florida

Howard Dvorkin CPA answers…

Howard Dvorkin on how to get out of debt fastNothing nefarious going on here, Peter. I didn’t answer your questions last month because those weren’t the ones I was asked. I’m more than happy to tell you: You’re right. You might not need a debt consolidation company. You can certainly attempt much of this on your own.

First, let’s review those debt-consolidation tools you can wield without assistance, and I’ll even list the “catches” for you…

1. Make a balance transfer

This is the easiest move. All you’re doing is transferring your debts from a high-interest credit card to a lower-interest one. even tells you how to take advantage of what’s known as zero-percent APR promotions to save big.

The catch: By law, cards that offer interest-free financing can’t raise their rates for at least six months. So if you don’t significantly pay down your debts in that time, you’re right back where you started with higher interest rates eating into your payments. There’s also a fee to make the transfer.

2. Take out an unsecured loan

“Unsecured” loans are just what they sound like — you aren’t putting up any collateral, like a car or house. While interest rates will be significant, they’ll still be less than those on your credit cards. So you take the loan and pay off your credit card bills, then pay back the loan for less interest.

The catch: As you can imagine, you need really good credit before a bank will extend you one of these loans — and not everyone does. Even if you qualify, you need the discipline not to spend this new lump of money on anything else but your credit card debt.

3. Take out a home equity loan

Your loan has much lower interest rates than an unsecured loan because your home is your collateral.

The catch: This is a dangerous form of debt consolidation, because you’re literally betting the farm that you’ll pay it back. If you don’t, you could end up homeless.

Of course, Peter, there are also “catches” to employing a debt consolidation firm. I mentioned some last month, but here’s one I didn’t have space to get into…

When you enter into a debt management program, also known as a DMP, you must stop using credit cards. Now, I don’t see this as a bad thing — I’ve written as much in my book Power Up — but some clients I’ve advised over the years are literally addicted to credit cards. They might have close to $100,000 in credit card debt, and they fully realize they desperately need help, but they just can’t let go of those cards.

I tell them they can get a debit card so they can still fly aboard an airline and rent a car, but let’s face it: Their lack of willpower with credit cards got them in this mess. The solution to any addiction is not more of what got you there.

In more than 20 years as a financial adviser, educator, and author, I’ve seen literally thousands of former credit cards addicts emerge from their DMPs with not only zero debt, but zero addiction. Some get new credit cards and use them responsibly. Some find no need for them any longer.

The big difference? The debt consolidation company provided free educational tools to assist them, and that made all the difference. Sometimes, Peter, going it alone is lonely.

Have a debt question?

Email your question to and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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