Have To Consolidate Debt?

debt (Photo credit: Alan Cleaver)
It’s likely that, you’re doing everything you can to cover it off, as fast as possible. You intend to be debt-free.

A worthy goal, to be sure.

But what do you do, for the time being?

Having a debt management plan is simply as essential as having a debt reduction plan. It could save you hundreds or thousands in interest, and perhaps even reduce the total amount of time it takes for you to be come debt-free.

Here’s how to still do it, without going to pricey or questionable debt consolidation firms. And forget about those debt consolidation loans! You have a lot of the tools you must do it yourself.

First, promise yourself you won’t take on any longer debt. Put all your credit cards somewhere besides your wallet. Among the best spots may be the freezer; by the time you thaw the cards to use them, you’ve probably changed your brain about your purchase. Why so drastic? Because you can’t manage your debt if you keep adding to it.

Now, you need to create a set of all the debts you have. Creating a chart or spreadsheet is probably the easiest way to sort all the necessary information.

List the next:

• Creditor’s name
• Principal currently owed
• Minimum payment
• Interest Contact 
• contact number 
• Website address with login information

Next, add any credit lines you might have been open but with zero balances to the above list. (I’ll explain why later. ) Complete all the above information, except principal and minimum payment, needless to say.

Just take your list and begin calling each of your current credit-card businesses. Ask what their current offers are for balance transfers. Mention that you'd be ready to move your balance to another bank's card in case a better offer occurs.

Take notes on your chart or spreadsheet for each offer. Watch the small print: ask if you can find balance transfer fees, just how long the low-rate  period lasts, what happens to the transferred balance if you create a late payment, etc .

Remember that a standard gimmick now could be to provide an extremely low rate for transferred balances without fees, so long as you charge a certain amount each billing period, say $25, which is billed at a higher interest than your transferred balance. Because the credit-card businesses apply your payment to the lowest-rate balance first, you’ll accrue the bigger interest on the monthly charges until your transferred balance is paid.

For example, say you transfer $5000 at 1 . 9%. The rate goes up in six months if you don't charge at least $25 a month by the close of the billing period. Purchases are charged at 11. 9%. If you pay $200 a month on the card, it’ll just take you 25 months to repay the transferred balance (ignoring finance charges). Meanwhile, for 25 months you’re charging $25, which grows to a balance of $625 plus interest of 11. 9%.

This gimmick won’t hurt you if you can get a low interest for purchases (say, less than 9. 9%), and you also be sure you only charge the total amount needed to maintain the low transfer rate. Once the transferred balance is paid, have the cash on hand to cover the purchases, too.

Ok, back to debt management.

After you’re done calling all your credit-card businesses, choose the one with the most readily useful offer. Transfer as much of one's balances as you can to that card. If there’s insufficient room, require a borrowing limit increase, or transfer the rest to the card with the second-best offer.

Note: if you ask the best-offer card to improve your borrowing limit, it’ll show on your credit file, so unless your credit is sterling, be cautious.

Find out when any introductory rates expire and create a note in your calendar. If you don't have your balances paid by, then, back up about six weeks and create a note to search out a fresh lower rate.

When you’re done, you ought to have all your charge card balances on just a few cards. Maybe three.

At this time, most experts would recommend you close your other accounts. I disagree, unless it improved your credit, and you also have to create a large purchase soon, like a mortgage. Put those cards in the freezer instead.

Why not close them? Because if you want to transfer balances again, those credit-card businesses will be hungry to get your business right back. If you’ve faithfully paid your transferred balances promptly, your credit will be in good shape (or at least much better than it was), and they’ll fall around themselves to make you transfer balances back to them.

Another note here: if you can’t control your charge card spending, then you should close the accounts. No debt management strategy is worthwhile if this means you’ll only put yourself deeper in debt!

Some folks usually ask me if it makes sense to put their credit card debt on a home-equity loan or line of credit, because they frequently have low introductory interest rates. I hesitate to recommend this. Home equity is secured by your primary residence. If you can’t pay, the banks foreclose. Why just take the chance if there’s another way?

Get your debt to the lowest rate possible, keep track of when low rates expire, and pay around you can as fast as you can.

Don't pay others to accomplish it for you. Do your own debt consolidation, and create a plan to pay it back as fast as possible?

I understand you are able to do it!

Copyright 2006 Leo J Quinn Jr Enterprises, LLC