Dear Dave,

We have about $20,000 in debt, and my husband and I have made a resolution this year to pay it off. I think we should live on a really tight budget and save like crazy, but my husband is really fired up about using a debt consolidation service. What can I say to make him change his mind about this?

- Brandy

Dear Brandy,

Debt consolidation services aren’t evil, but there are huge problems involved in using them. For one thing, it will trash your credit for the purposes of buying a house. According to the underwriting guidelines of both Fannie Mae and FHA, you will be treated as if you’d filed Chapter 13 bankruptcy if you use one of these debt CON-solidation outfits.

Yes, I called it CON-solidation, because the whole thing is basically a con. You think you're doing something about your debt problem, but the debt is still there, and in the end, so are the bad habits that caused the debt. The consolidation idea seems appealing to lots of people, because usually there’s a lower interest rate or lower monthly payment involved. In most cases, however, the lower interest rate or payment only exists because the term is extended. You might pay a little less each month, but you end up staying in debt even longer!

There’s another problem. Your husband wants to wiggle out of the mess instead of owning up to it and fixing it. Sometimes you’ve got to face the music, Brandy. It’s a behavior issue. Making sacrifices and living on a tight budget is the best way to fix this mess and learn a lesson in the process. Live like no one else, so that later you can live like no one else! There’s no magic pill, and no consolidation company is going to get you out of debt and help you stay out of debt. The answer is you, Brandy. You are your best and only secret weapon. You’re never going to learn how to get control of your finances if you turn it all over to someone else.

- Dave

Dear Dave,

I’m a sophomore in college, and I earn about $1,500 a month at my job. My rent is $500 a month. I don’t really have a credit history, but I’ve saved $20,000, and I’m thinking about using it as a down payment on a $140,000 home. Would this be a good idea?

- Gil

- Dear Gil,

I wouldn’t do it. I love the fact that you’re working while you’re in school. Saving that much money is fabulous, especially for someone who’s not even 20 years old!

I almost did the same kind of thing when I was in college. I was into real estate, and I really wanted to test my wings and buy something. Looking back on it, though, I’m glad I didn’t. It would have been a huge mistake. College can be a bumpy enough ride, even for the most responsible student. If you lost your job you’d be in a real mess, and with your stated income you wouldn’t have a lot of breathing room. Plus, the two years following graduation have the potential to be the most permanently life-changing period you’ll ever experience. You could move across the country for a new job, get married, or decide to attend graduate school. In any of these situations, a house would turn into an anchor around your neck.

Being a renter is a great thing while you’re still in school. In the meantime, keep piling up cash until you’re ready to settle down!

- Dave