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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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