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The Debt Adviser

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?
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  • 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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