Is using a debt consolidation or debt settlement company a good idea?

Dear Dave,

I’ve been seeing lots of ads lately for debt consolidation companies, debt settlement companies and the HELOC. Are any of these methods for reducing debt a good idea?

— Brent

Dear Brent,

No. These are all bad ideas when it comes to getting out of debt. There’s a lot of buzz these days surrounding all the “quick” and “easy” ways to clean up debt and get control of your finances. But the truth is neither one is ever easy. If something sounds too good to be true, it probably is.

Debt consolidation is basically a loan that combines all your debts into one single payment. Sounds like a great idea at first, right? But then you find out the lifespan of your loans increase, and that means you’ll stay in debt even longer than before. The low interest rate that looks so appealing in the beginning usually goes up over time, too. Stretching out the amount of time you’re paying off debt, plus adding interest, is just dumb.

Debt settlement companies are awful. These crummy outfits will charge you a fee, then promise to negotiate with your creditors to reduce what you owe. In most cases, they take your money up front, do a bad job “negotiating” your debt and leave you responsible for what’s left.

A home equity line of credit (HELOC) is also a bad idea. With a HELOC, you’re borrowing against your home. On top of that, you risk losing your house if you can’t pay it back on time.

All these plans are really just gimmicks that only treat the symptoms of your money problems. They never help you address the root issue of why you landed there in the first place. Personal finance is always 80 percent behavior, and 20 percent head knowledge. You have to change your behavior if you want to make a lasting, positive impact on your finances.

— Dave