debt

Organize credit card debt

Read through the credit card statement a few times. A lot of the information is hard to decipher. For example, some offers waive fees for "initial balance transfers" only. These are the transfers that are authorized when the customer first accepts the card and completes the balance-transfer form.

In such cases, every other balance transfer is treated as a cash advance and is subject to cash advance fees. Cash advances are VERY expensive.

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Once comfortable with the terms of the offer, be sure to fill out the balance-transfer form carefully. Incomplete information may halt or delay a transfer.

It's also a good idea to make the minimum payment on the old card while waiting for the balance transfer to take effect; that may take anywhere from two to four weeks. The last thing a person who is trying to minimize their credit card costs needs is a $29 late fee and a penalty rate.

Your credit card company may send a notice saying the balance transfer is complete. Be sure to call the old card company and verify this. Write down the name of the person you talked to, the date, the time and what was said.

To avoid any mix-ups, experts urge people to wait until the old credit card company sends them a billing statement with a zero balance. If the company doesn't send one, request it.

Then cancel the old card. You don't need it.

Dangers of consolidating credit card debt

Consolidating credit card debt is not without danger. The most immediate dangers have to do with how well you manage to make the transfers.

Watch out for these costly errors

  • This could cause your rate on the card to shoot up, costing you quite a bit in interest rate charges. In fact, don't even let a card issuer know that you're thinking of leaving until you've paid off the balance. Some issuers will jack up your interest rate if you try to cancel while you have a balance.
  • Not finding out the rate and fees for balance transfers.
  • Not paying the minimum on all your cards until the transfers are officially complete. If you don't pay on one card, that nice rate on your other card could disappear -- and you will have transferred without saving a dime.
  • Not paying all your cards on time. You should realize that it may only take one slip-up for a super-low rate to disappear. One late payment can result in a 9.9 percent rate to jump to a 21.9 percent rate.
  • Canceling cards before you apply for a mortgage or car loan. This could actually worsen your chances of getting favorable terms. Credit-scoring models look at a number of factors when calculating your score, including the result of the following formula: The total amount of debt on credit cards and revolving accounts divided by the total amount of debt available on those accounts. This formula results in a fraction less than one. The lower the fraction the better. This means that you might want to wait until after you have received the loan to cancel your cards.

Perhaps most importantly, you need to remember that the debt, even at better terms, is still there. And you still have to be diligent about paying it off before you add to it.

In other words, remember that consolidating your debt doesn't mean you are free to charge up your remaining credit cards. If you truly want to get out of debt, use this as an opportunity to put all your credit card debt in one place, concentrate on paying it off and get rid of credit cards you don't need.

Tips for getting out of debt

  • Put all your credit card debt in one place
  • Concentrate on paying it off
  • Get rid of credit cards you don't need

Steve Bucci, Dana Dratch and Amy Fleitas contributed to this story.

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