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Take the debt comfort quiz
Dear Debt Adviser:
I have five separate credit cards with balances, but my percentage
rate is fairly low on all of them. I'm finding it hard to keep track
of them. Should I consolidate?
Melissa
Dear Melissa:
Before I answer your consolidation question, let's explore where
you stand financially. Five credit cards with balances may not be
a sign that you are in trouble with your debt load, but not keeping
track of them is a game of Russian roulette! Sooner or later, you'll
get an unpleasant surprise!
First, take the following quiz to determine if you
are within your comfort level for outstanding debt.
- Are you incurring more debt by paying for monthly
expenses, such as groceries and utilities, with credit cards or
otherwise borrowed money?
- Do you pay only the minimum payment on your credit
cards?
- Are you unsure of how much you owe in outstanding
debts?
- Is more than 20 percent of your net income going
to pay unsecured debt?
- If you have a significant person in your life,
do you argue over money? Worse yet, are you afraid to bring up
the subject?
- Are you using credit to pay off old debt?
- Have you been denied credit?
- Are you getting letters or calls from bill collectors?
- If your income were decreased would you be in immediate
financial difficulty?
- Have you sold items in garage sales or at flea
markets to raise cash for necessities?
- Have you cashed in savings or retirement accounts
to pay bills?
If you answered yes to two or more of these questions,
you need to take a serious look at your spending. You can find helpful
tips for changing your spending habits and creating a spending plan
in my column "Defeating
debt requires persona change."
All answers no? OK, you passed the quiz with flying
colors. Now, what to do about keeping track of your credit cards?
First, determine your credit needs. How you are using
your cards will determine whether it makes sense to consolidate
the balances.
- Cutting back on the number of cards could be accomplished
by using a bank card such as Master Card, Visa or American Express
to eliminate gas or department store cards.
- You will want to keep any free incentive cards
that provide air miles or points toward a new car. If you have
to pay for the card, consider how many points you earn in a year
and if its worth the expense.
Ultimately most people really need only 2 or 3 multipurpose
credit cards. To consolidate your balances onto fewer cards I would
recommend that you:
A. Pay off any low-balance cards you will
not be keeping, and then close the accounts.
B. Transfer the remaining balances to the
card with the best interest rate. Don't use this card until it's
paid off. This will avoid additional interest charges on revolving
purchases. Once the balance is paid, close the account.
C. Choose the 2 or 3 cards you are going
to keep, and be sure they have limits high enough to cover your
monthly charges. Close the others, and be sure to pay these off
in full each month.
You may also want to look into a software program
like Quicken to help you keep track of bill paying. These programs
are user friendly and will help you keep things organized.
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
-- Posted: Oct. 25, 2002
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