Ask Kim
Debt Consolidation Strategies
I would like to consolidate my debts. What is the best way to do this?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
January 15, 2003
I would like to consolidate my debts. What is the best way to do this?
If you have a home, your best bet may be to take out a home-equity loan or to borrow extra money if you're refinancing your mortgage. The rates are around 40-year lows and the interest is generally tax deductible. But you need to be very careful not to accumulate more credit card debt -- if you can't afford to keep up the monthly payments, you could end up losing your house. Go to our Yields & Rates page to search for the lowest rates. Also see if your current lender can offer you a better deal.
Or you could switch to a lower-rate credit card and transfer your balances to make it much easier to pay off your debts. Also ask your current card company if it can offer you a better deal.
Some card companies are offering particularly low rates now, but the rates often jump after six months or so. You still can benefit from these teaser rates, but you need to be careful -- be prepared to switch to another low-interest card before the rate rises. And be sure to read the fine print: Some of these low rates are only for balance transfers but may be much higher for new charges. So you'll want to keep one card to pay down your old debts and another for new purchases.
The more money you can pay toward your credit-card bills each month, the faster you'll pay off your debt and you'll spend a lot less money in interest. See "Minimum Payments Perpetuate Debt."