Dear David,

I’ve seen a lot of ads for debt consolidation companies, debt settlement companies, and the HELOC lately. Are These Debt Reduction Methods a Good Idea?

—Brent

dear brent,

No. These are all bad ideas when it comes to getting out of debt. There is a lot of hype these days about all the “quick” and “easy” ways to eliminate debt and take control of your finances. But the truth is that no one is ever easy. If something sounds too good to be true, it probably is.

Debt consolidation is basically a loan that combines all of your debt into a single payment. Sounds like a great idea at first, doesn’t it? But then you find that the life of your loans is lengthening, and that means you stay in debt even longer than before. The initially so temptingly low interest rate usually increases over time. Extending the time you pay off debt and adding interest is just plain stupid.

Debt settlement companies are terrible. These seedy companies will charge you a fee and then promise to negotiate with your creditors to reduce your debt. More often than not, they take your money upfront, do a poor job of “negotiating” your debt, and leave you in charge of what’s left.

A home equity line of credit (HELOC) is also a bad idea. With a HELOC you are borrowing against your home. In addition, you risk losing your home if you cannot pay it back on time.

All of 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 ended up there in the first place. Personal finances are always 80 percent behavior and 20 percent mental knowledge. If you want to have a lasting positive influence on your finances, you have to change your behavior.

— David