How to Consolidate Wisely to Reduce Credit Card Debt

You're in credit card debt up to your ears but you're in good company. Millions of Americans are paying out a good chunk of their weekly paycheck just to keep the wolf at bay. Debt consolidation is one way to reduce your credit card debt and with low interest rates, you can even save some money. But, be warned...debt consolidation means more than a short-term fix, to be successful, it means re-evaluating your entire credit agenda.

Difficulty: Moderately Challenging

Instructions

1. Look at the interest rates you're paying right now on all your credit card debt. If you've missed one or two payments, the credit card issuer might be punishing you with an exorbitant interest rate. High interest rates do not automatically signal a need for debt consolidation, although they are one factor.

2. If you have only one or two high interest cards, call the issuing credit card companies before you choose debt consolidation. In many instances, they will reduce your interest rate upon request.

3. Debt consolidation is often a requirement for credit counseling and it can put your monthly payments back under control. There's just one catch. If you consolidate, you must commit NOT to use your credit cards again. Not ever. If you're still too attached to the plastic, forget it. You're not ready.

4. Try debt settlement first. There's a little known trick to getting a credit card issuer to settle with you for pennies on the dollar. File for bankruptcy. Oh, no, I can hear you say...never. Let me clarify - FILE for bankruptcy, don't finish the claim.

5. Unethical? Perhaps, but it is one hundred percent legal. This works if you have massive credit debt. Start the bankruptcy process, and as a requirement, all of your creditors will be notified that you have filed. At this point they know that the money you owe them is a loss.

6. Now, call them. Call each creditor, one at at time and apologize for filing for bankruptcy. Tell them that of all your debts, this is the one you wish you could pay. Ask them to accept a small settlement in return for erasing your debt. Once you pay a small fraction of what you owed, do not finish the bankruptcy filing. Now, you're out of debt and your credit is still intact.

7. Okay, let's say your debt is just not that big, you might then be a candidate for consolidation but you may have to secure the new consolidated loan with your house or another asset. This means you must cut up your plastic, there are no other alternatives. Cut it up - take the consolidated loan and put the balance left over in a savings account. Then, when you need something - you can pay cash.

Tips & Warnings

• Try other methods before choosing debt consolidation.
• Don't apply for a new credit card. It's just not worth it.

Resources

• Keep Your Money Safe in a Recession
• Make the Most Money with Fundraising Events
• Buy Stocks in a Bear Market
• Build a Secret Underground Room
• Use Debt Consolidation
• Budgeting Software for Your Business
• Find a Cashback Credit Card

[Rockney]

on 12/29/2008 Great advice!

[lynnhsmomof2]

on 12/29/2008 Great advice! Hope I don't ever need it!!! 5*

[kohuether]

on 12/29/2008 Some people say that to get out of debt, we need to cut up our credit cards and only use cash. Sounds extreme, but it has worked for a lot of people. In addition to that, your tips are excellent.

[JoyNmyHeart]

on 12/29/2008 Great article. My husband and I just paid off all of our debt except our car and we "snowballed" our payments from our debt into our car so it should e paid for in no time. Thanks for some good advice!