海角大神

5. Clean up your debts.

No, I don鈥檛 mean just repay them. For most people in debt, saying 鈥減ay off your debts鈥� is pretty trite. It鈥檚 an action that they can鈥檛 afford or else they wouldn鈥檛 have debts to begin with.

Instead, a better first step to take is to clean them up. Minimize interest rates. Lower monthly payments. Refinance. Negotiate. Consolidate.

Here are several steps you can take to clean up your debts which will both reduce your monthly payments as well as the interest you owe on the debts without wrecking your credit rating.

Refinance your mortgage Interest rates on home mortgages are ridiculously low right now, often dipping below 4%. If you are not underwater on your home and you have an interest rate that鈥檚 above 5% and you still have more than a few years to go on your mortgage, it鈥檚 almost assuredly worth your while to refinance.

If you have other collateralized debt (usually a car loan) that鈥檚 at a higher rate than your refinanced mortgage, you should consider pulling that debt into your mortgage by borrowing enough to pay off the automobile. Do not use your refinance to pay off non-collateralized debt, though 鈥� don鈥檛 put your home at risk just to pay off credit cards.

I usually recommend starting with your local credit union or with your current lender when considering refinancing, but don鈥檛 be afraid to shop around.

Lower your credit card interest rates I wrote a while back and the general information there still holds true. You should give this a shot if you have a substantial amount of debt sitting on credit cards and have largely been able to make your payments up to this point and it鈥檚 not going to cause a financial apocalypse for you if you have a card cancelled or a credit limit reduced along the way. If you鈥檙e teetering on that kind of edge, be careful.

The process is simple 鈥� just call the number on the back of the card, state that you鈥檙e considering switching your active use to another card because of the oppressive rates, and ask for a rate reduction. If the first person won鈥檛 do it, ask to speak to their supervisor.

While you鈥檙e there, ask about any balance transfer offers that they have available on your card, in preparation for the next tip鈥�

Consolidate your credit card debt through balance transfers If such transfers are available to you, transfer the debt from your highest interest rate card (after getting all the reductions you can) to your lowest interest rate card. This will not only help with the monthly payments, but will also help with the overall interest you have to pay. You can also do this via a cash advance.

Make sure you understand, however, that different balance transfer offers handle transferred balances differently. Some charge a different rate on balance transfers, so if you鈥檙e considering a transfer, ask for the details before you leap in.

Cancel unused cards besides your oldest Your oldest card should remain because it establishes the length of your credit history. Aside from that, unused credit cards mostly just provide a route to identity theft 鈥� something you don鈥檛 need.

I usually advise people to cancel cards with a zero balance that are not their oldest card or their most frequently used card. This way, you minimize the options for identity theft and have fewer things to worry about in the event of a stolen wallet and so on.

Now that you鈥檝e trimmed the tree a bit, how do we go about knocking it down? We鈥檒l talk about that tomorrow.

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