Debt Reduction Is About Changing Your Behavior Not Switching Money Around

by The Happy Rock on May 28, 2008

Tom : I just paid off a nice chunk of my debt.
Mark : Really.
Tom : Yep, we paid off one of our credit cards!
Mark : That’s great, how did you find the money?
Tom : I used a balance transfer for a new credit card that my wife signed up for.
Mark : So you didn’t actually reduce your debt at all?
Tom : Well, I guess technically you’re right

I hear these types of conversations all the time. Let me be clear, moving debt from one account to another isn’t debt reduction. Buying a new car with a home equity line of credit still means that you have $25,000 more in debt. Paying off credit cards with another credit card or a home equity line isn’t debt reduction. The even scarier part is that you may have just done more potential harm than good.

Why…unless you change the behavior that got you into the debt in the first place there is a good chance that the empty card will fill up again and you will still have the extra balance that you transfered to your other account. Now instead of a Honda coming to repossess the car when you realize you can’t afford the payment, they will come after your house.

Switching money around usually hides the real problems. Sure, transferring money to a 0% credit can help, but only if you are focused on the real goals of debt reduction :

  • Debt reduction is about undoing financial messes; it is not about exacerbating them.
  • Debt Reduction is about changing your relationship with money and giving ourselves a positive financial outlook.
  • Debt reduction is about changing our bad behavior and replacing them with helpful ones.

{ 5 comments… read them below or add one }

PT May 28, 2008 at 5:02 pm

Good point, Rock. I can’t imagine how hard I’d have to bite my tongue if someone said that infront of me.


Diana May 30, 2008 at 12:02 am

Nice post. Curing a desease must be done to the main cause, not only removing the symptomp. We must do the same when dealing with debt.


Genivive May 30, 2008 at 7:50 am

AMEN! So many people get caught up in moving debt around instead of getting rid of it. What’s worse is that they don’t get rid of the card that they just paid off using a balance transfer and 6 months later it’s up in the rafters again and they’re back to paying minimum payments. People get real, understand that you need to get rid of debt completely using a thought our debt reduction plan. Do as the man says, Change YOUR LIFE.


julie June 11, 2008 at 3:32 pm

I can understand how that may bring a bit of relief to that person, even though he is missing the big picture, in to the daily, weekly or monthly transfers instead of several payments it comes down to one, bringing a false sense of economic stability and a fair acquisition ability…


C. Sykes August 4, 2008 at 5:56 pm

A large part of the problem are the continuous pitches from banks and credit card issuers. I just wrote a post on my blog about a home-equity loan offer I received that started by comparing a principal/interest payment with an “interest only” payment. It also pitched a 4% interest rate…you had to read the fine print to find out that this rate didn’t apply for borrowing any amount under $100,000!

And, surprise, surprise, the only thing in the letter mentioning that with a home equity loan you’re putting your house up as collateral was a “we comply with the necessary notification” line, also in the fine print.

Any ordinary consumer reading this would have thought it was a great deal. It was about as crooked as a pitch could be…and it came from a major bank.

I swear, financial companies nowadays use tactics that would make snake oil salesmen blush.



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