How to Consolidate Your Debt


In our Repost Series, we re-publish classic posts from our archives. We thought this post, first published in April 2008, was an interesting topic to bring back for discussion.

Open your purse. Do you have such a wide variety of department store credit cards that sifting through your wallet is like reading a mall directory? Are there so many Visa, MasterCard, AmEx, and Discover cards that you have to sort them chronologically according to expiration dates? If so, it just might be time to cut down on some of your credit accounts and do some consolidation.

Why consolidate? When you’re trying to pay your bills down, sometimes it’s just easier to do it if there aren’t so many bills due throughout the month. When you can concentrate on one or two payments per month instead of several payments – no matter how small – it becomes easier to attack the debt. So how should you go about consolidating? It’s pretty easy:

How to Consolidate Your Debt

Send all your balances to one card. The credit card that you place your balances on should have a lower interest rate than the other cards you consolidate. It doesn’t make a lot of sense to move all your balances to one card if that one card has a monster interest rate.

Get a consolidation loan. Instead of moving your balances to one card you might want to look into putting all your balances together into a consolidation loan. The interest rate might be a little higher, but if you get a fixed rate you will probably wind up saving money in the long run.

Use your equity. This is a little risky, especially with plummeting housing prices, but if you have some equity in your home you can take out an equity loan or line of credit and consolidate your debt that way. The good news is that you can get a low interest rate and maybe a tax break, but the bad news is that if you don’t make your payments then you can lose your house.

Once you’ve consolidated, cut up your cards. Don’t be the type of person who consolidates everything and then slowly but surely starts using the same cards again. This is a recipe for disaster. Cut up the cards. Burn them in effigy. Make a clever handbag out of them. Whatever you have to do to keep you from using the cards again, do it. You don’t want to wind up deeper in debt than what you started with, right?

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  1. CaitlinV says

    Here is something I’ve wondered about. I’ve always been financially responsible and paid my bills on time. Almost all of my expenses go on one credit card. However, I DO have multiple store accounts, which I’ve usually opened in order to save 15% on a big purchase. Sometimes I close them right away, but I probably have 4 or 5 open and inactive currently. I looked at my credit report and there was nothing negative, but I heard that having too many cards open can negatively affect your FICO score. I’ve also heard that opening and closing accounts too quickly can negatively affect it. Any insights? Should I just close them all?

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