Your debts have ballooned and spread across multiple lenders, and the repayments are choking you again and again every month?
A client once told me: “My good morning is minus 7,500 shekels.”

As great as the pain, so is the size of the industry built upon it.
The debt consolidation market is one of the most aggressive I see. Banks, credit companies, and institutional bodies – all are happy to offer you “better loans.” The most aggressive of all are the loan brokers, who are essentially “debt experts” who do the search for the most suitable loan for your profile. Even if you’re a very poor borrower, and despite it being irresponsible toward your future financial situation, they’ll find someone willing to give you money.
“Interest rate reduction,” “lower monthly payment,” “peace of mind,” and “get back to living” – these are the slogans behind which stand advisors whose only interest is the commission they take from the loan you take through them.

One professional once told me proudly:
“I charge about 10,000 shekels, but the client doesn’t feel it – I simply roll the amount into the new loan.” He also admitted he has quite a few repeat clients. In other words, people who used him in the past for debt consolidation come back again and again. Why? Because no one stopped to check what created the debt in the first place. The banks make a living. The advisors make a living, and the clients? They haven’t really improved their position. Their problem is simply spread over a longer period of time.
Sometimes the problem even worsens immediately: in many cases the “advisor” will make sure you receive money in your account, but won’t make sure you closed the old loans. This way you might find yourself with two loans instead of one, and with double the hole.

What’s the principle here?

Whether it’s the bank, credit companies, institutional bodies, or debt advisors – the suppliers in the loan market aren’t thinking about your financial well-being.

They present their offer so you’ll feel like you’re paying a little over a long time, but at the end of the day, you’re paying a lot without necessarily improving your situation.

What is the right way to take or consolidate loans? – Keep reading

So when is debt consolidation really justified?

Only after you’ve taken one critical step that must not be skipped: building an expense plan.

What must you do before deciding on debt consolidation?
Before any dramatic financial step, you need to understand how much it really costs you to live for a month. A simple expense plan will show you how much of your income goes to debt repayments, how much goes to daily expenses, and whether the new repayment will leave you in the black or deepen the hole. In other words, after all the household expenses, do you really have the amount you’re committing to repay each month?

Remember – debt consolidation is just a tool. Without changing the behavior that got you into debt in the first place, this tool won’t help. If you’ve managed to lower the monthly repayment, don’t look at the money freed up each month as “permission” to return to routine and regular expenses. As long as there’s debt and no emergency fund, you’re still in a financial emergency. Even if it doesn’t feel that way the day after consolidation.
At the end of the day, debt consolidation doesn’t change your situation. It just spreads it thinner.

In my approach, debts are closed quickly. This is how you’ll do it.

When might debt consolidation worsen the situation particularly?

• Spreading the debt over more years – instead of finishing and moving forward, you’re left with a loan sitting on your cash flow for many years.
• Paying more interest in practice – even if the annual interest rate is lower, the very act of spreading causes you to pay more over time.
• You can get the same terms on your own – many times your bank will agree to improve terms without you paying 10,000 shekel fees to a broker.
• And most critically – debt consolidation doesn’t create a change in your financial conduct. Without changing habits and learning how to manage income, you’ll return very quickly to the same loop of debts!

Step by step

1. Don’t rush to consolidate loans just because the lender made it sound cheap or efficient.
2. In most cases, the lender is making money at your expense – think carefully whether this is indeed the step that will help you, or if it just looks attractive right now.
3. If you still want to consolidate loans – don’t consolidate before checking whether you can actually meet the payments each month.
4. Build an ‘expense plan’ through which you can check what your monthly expenses are, and whether you’ll meet the loan terms and payments each month.
5. Remember – debt consolidation is just a tool for dealing with debts, it’s not a magic wand.
6. Debt consolidation can worsen your situation even more – don’t rely on it working in your favor.
7. Changing habits is your best friend, much more than debt consolidation, no matter how attractive they try to make it look.

In Summary

In most cases debt consolidation is not a solution, it’s a bandage on a large and bleeding cut.
There are situations where debt consolidation is necessary to manage monthly cash flow, but it will never replace a real process of fixing habits and building deep control over your money. Only after an in-depth process of financial correction will you know exactly when debt consolidation is a smart decision, and when it’s simply another loan that hides the real problem and deepens it.