What I’ve Been Up To

Mailbag Monday: Solving Credit Conundrums

I need a reputable resource to help me with credit card debt. My husband and I make over $200,000 annually, but are drowning in debt.  Is consumer credit counseling a good option?

-Mary Beth

I am interested in consolidating my credit cards into one monthly payment. Please advise on organizations that offer this and please note that I am not looking for debt reduction.  Thank you

-Katie

Hi Mary Beth and Katie,

For you, Mary Beth, the route you should take is clear – and it’s described in this paragraph. For you, Katie, you could go one of two routes – the one in this paragraph or the one in the next. Your choice. The first option, credit counseling, is for people who are having problems paying off their debt. I can’t tell from your note if you are or not – so let me tell you how it works and then I’ll move on to the second method. A not-for-profit credit counselor consolidates your credit cards into one monthly payment, typically, at an interest rate of 6 percent.  If you have any over-limit or late fees, they’re usually waived simultaneously.  From that point on, you can no longer use your credit cards and you make one monthly payment to the counseling service which uses that money to pay your bills. It usually takes 3 to 5 years to complete the process and there’s a small fee to get into the program (usually around $75) as well as a small monthly fee. You can find a reputable counselor through the website debtadvice.org. But this is not for people with good credit scores just looking to reduce their interest rate and/or administrative hassle.

That would be a consolidation loan. There are many different ways to consolidate your debt under a single loan – the simplest of which is to transfer all of your other balances to one credit card with a low interest rate and high credit limit. If you don’t have a card like this now, but would like to find one, you can do that at a website like lowcards.com or cardhub.com. You can also use other types of loans to consolidate your debt: home equity lines of credit, a cash-out refinance of your mortgage (where you use cash to pay off the loan) or an unsecured personal loan. I don’t recommend mortgage financing for this purpose.  Although the interest rates are both low and interest is tax-deductible, you’re putting your home on the line. In the past, one-third of people who did this racked up substantial credit card debt a few years down the line. They were then on the hook for both credit card and mortgage debt.  An unsecured personal loan, though the interest rate will be a little higher, is a better bet.

Jean