Debt consolidation allows you to group all of your debt under one umbrella. If you have high-interest debt like credit card debt, consolidation can also help you secure a lower interest rate. However, debt consolidation doesn’t always make sense.
A Redditor in the Dave Ramsey subreddit recently asked about consolidating $20,000 in credit card debt. The individual is looking at a home equity loan but is on the fence, hoping that interest rates go down.
“I’m in this weird limbo,” the Redditor explained.
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While the Redditor framed their question around waiting for rates to go down or tapping into home equity, commenters had other thoughts.
The debt snowball is a popular method that involves paying off small debt first, building small wins, and using that momentum to become debt-free. Multiple commenters said that the original poster did not need to consolidate debt.
Even if rates go down, it’s expensive to take out a home equity loan. You have to pay origination fees and closing costs. Those expenses make it harder to get out of debt, and you can use that extra money to cut down the credit card.
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Multiple commenters also pointed out that the original poster had to practice some bad financial habits like impulsive spending to end up with a $20,000 credit card balance.
“The most important bit here is correcting the behaviors that got you in $20,000 of credit card debt in the first place,” one commenter stated.
Some people use home equity loans and HELOCs to enable their bad spending habits. These financial products have lower rates and kick debt repayment further down the road. You can get a term of up to 30 years to minimize monthly payments. It’s not necessary to go that route, but the fact that it’s an option demonstrates how easy it is for people to ignore debt.
It only makes sense to consolidate debt if you have corrected your financial habits. The Redditor should work hard to trim their credit card debt for a few months before considering a home equity loan. However, if the Redditor does it correctly, the credit card debt will be much lower,
