Debt consolidation can be a lifesaver or a sinking lifeboat. The process involves obtaining a new loan and paying off your current loans as much as possible. Since the new loan should have a lower interest rate than your current loans, you have a smaller payment. The downside is once those current loans are paid off, you and your significant other may be temped to start using the cards again. A second mortgage, or refinancing your mortgage, is one way to consolidate debts, but it's still possible even if you don't own a home.
Order a copy of your individual credit reports. Inspect the reports for any mistakes, such as late payments that weren't late, accounts that aren't yours and incorrect account totals. Your credit score impacts what kind of interest rate you qualify for. Lower interest rates cut your fees. Credit scores are not computed jointly, whether you're single or married.
Make a list of all your credit cards, personal loans and store accounts, including the total owed, minimum payment and interest rates. You should have two lists if you're a couple.
Shop around for an introductory credit card offer that has an initial fee of zero percent or as close to that as possible. The card should have a credit line that is adequate to cover as much of your current loans as possible.
Check the cards for membership or annual fees. Choose the card that has the lowest fees. Each of you should apply for separate cards. Transfer the balances of your current credit cards to the new card. The zero percent interest replaces the high interest -- of up to 38 percent -- on your current cards. That dramatically cuts the interest fees you'll pay.
Pay down as much of the debt on the new credit card as possible during the six month introductory period. Ideally you should continue to make the minimum payment that you would have made on all your cards. Toward the end of the introductory period, start looking for a new introductory card with zero percent interest. Again transfer the balance. Close the previous card but not the old credit cards. Credit scores are based on the history of the accounts. Closing the old credit card accounts has a negative impact on your score.
- If you can't get a new card that will cover the total of the current cards, transfer the accounts with the highest interest rate first to cut the most fees.
- Don't confuse debt consolidation with debt settlement. Debt settlement means negotiating with your creditors to pay less than what you owe and persuading them to forgive the rest. Debt consolidation pays the entire balance.
- Keep your payments on time. One late payment could bump up the interest rate immediately and you'll lose your savings.
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