Need to consolidate debt?

Chances are, you’re doing what you can to pay it off, as quickly as possible. You want to be debt-free.

A worthy goal, to be sure.

But what do you do in the meantime?

Having a debt management plan is just as important as having a debt reduction plan. It can save you hundreds or thousands of dollars in interest, and maybe even reduce the total amount of time it takes for you to be come debt-free.

Here’s how to do it right, without going to pricey or questionable debt consolidation firms. And forget about those debt consolidation loans! You have most of the tools you need to do it yourself.

First, promise yourself you won’t take on any more debt. Put all your credit cards somewhere besides your wallet. One of my favorite spots is the freezer; by the time you thaw the cards to use them, you’ve probably changed your mind about your purchase. Why so drastic? Because you can’t manage your debt if you keep adding to it.

Now, you need to make a list of all the debts you have. Creating a chart or spreadsheet is probably the easiest way to sort all the vital information.

List the following:

Creditor’s name Principal currently owed Minimum payment Interest rate Contact phone number Website address with login information

Next, add any credit lines you may have open but with zero balances to the above list. (I’ll explain why later.) Fill in all the above information, except principal and minimum payment, of course.

Take your list and start calling each of your current credit card companies. Ask what their current offers are for balance transfers. Mention that you'd be willing to move your balance to another bank's card if a better offer comes along.

Take notes on your chart or spreadsheet for each offer. Watch the fine print: ask if there are balance transfer fees, how long the lower rate period lasts, what happens to the transferred balance if you make a late payment, etc.

Be aware that a common gimmick now is to offer a very low rate for transferred balances with no fees, as long as you charge a certain amount each billing period, say $25, which is billed at a higher interest rate than your transferred balance. Since the credit card companies apply your payment to the lowest-rate balance first, you’ll accrue the higher interest rate on the monthly charges until your transferred balance is paid off.

For example, say you transfer $5000 at 1.9%. The rate goes up in 6 months unless you charge at least $25 a month by the close of the billing period. Purchases are charged at 11.9%. If you pay $200 a month on the card, it’ll take you 25 months to pay off the transferred balance (ignoring finance charges). Meanwhile, for 25 months you’re charging $25, which grows to a balance of $625 plus interest of 11.9%.

This gimmick won’t hurt you if you can get a low interest rate for purchases (say, less than 9.9%) and you make sure you only charge the amount needed to maintain the low transfer rate. When the transferred balance is paid off, have the cash on hand to pay off the purchases, too.

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