 Debt
consolidation
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 Dear
Dr. Don,
Given the current interest rates, what vehicle would be the best
to reduce credit card debt? I owe between $8,500 and $10,000 on
two cards. I do not use them any more, so only finance and late
charges are added. These, though, are almost insurmountable. I have
$20,000 to $25,000 equity in my co-op apartment that I'd be willing
to tap into for the deductibility, but am having a hard time coming
up with a plan. I have other debt, but it is manageable (mortgage
and car payment). It's the consumer stuff I need to get a handle
on, so I can start to pay some student loans instead of deferring
yet again.
--Alicia
 Dear
Alicia
I can understand finance charges accruing on your credit card debt,
but you've got to put a stop to paying late charges on these cards.
Get at least the minimum required payment in on time. Late payments
can show up on your credit report and hurt your ability to get credit,
or they could increase the interest rate on that credit.
Using a home equity loan or a home equity line of
credit (HELOC) to pay off your credit cards holds three potential
advantages to you: it extends the debt over a 10-year period, it
reduces the interest rate on the outstanding debt, and may allow
the interest expense to generate a tax deduction.
The downside to this is that you are risking your
investment in your home when you borrow against the equity to pay
off your credit card debt. If you go this route, make sure that
you are committed to living within your means so you won't get into
this situation again. To learn more about home equity loans and
lines of credit, and to search for the best rates, start at Bankrate's
home
equity channel.
You need to put together a monthly budget to track
where your money is going. The student loan deferment or forbearance
may have been necessary, but unless they were subsidized loans,
the interest builds up and is added to the outstanding loan balance
putting you deeper in debt.
If your home computer doesn't already have personal
financial planning software available to you, try the free budget
worksheet at The
Commonsense Consumer to help you develop a budget. Then use
Bankrate's
budget calculator to see how your monthly expenses stack up
against national averages.
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