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How to Consolidate Debt

Combine your debt into one manageable chunk to minimize interest rates.


  • Step 1: Avoid debt-consolidation firms Stay clear of debt-consolidation firms. They can’t do anything for you that you can’t do yourself.
  • TIP: Remember: Debt-consolidation firms that advertise themselves as 'nonprofit' are not necessarily free.
  • Step 2: Call your creditors Call your credit-card companies and try to negotiate lower interest rates. Be persistent – if they say no, ask to speak with someone else, or call back in a few weeks and ask again.
  • Step 3: Investigate new cards Check around to see if you can get a new card with a promotional rate of six months to a year of no interest.
  • TIP: Read the small print! Don’t sign up for a card that reserves the right of 'no-reason rate increases' or 'universal default,' which means the company can raise your interest rates simply because you owe money to other creditors.
  • Step 4: Transfer balances If your lowest-interest credit card has available credit, consider transferring other balances to that card. But do some number crunching first: Exorbitant transfer fees might make debt transfer pointless.
  • Step 5: Apply for an unsecured loan Shop around for an unsecured debt-consolidation loan with a lower interest rate than that of your lowest-interest credit card. If you qualify for one, pay off your credit cards with the loan. Just be aware that they are nearly impossible to obtain in a tough economy.
  • Step 6: Apply for a home-equity loan If you own a home, consider applying for a home-equity loan or line of credit; the interest you pay is often tax-deductible. Just make absolutely sure you can make the payments so you don’t put your home in jeopardy.
  • TIP: Make sure the loan doesn’t come with a prepayment penalty.
  • Step 7: Stop spending! Put the brakes on unnecessary spending so you don’t incur more debt while paying off what you already owe.
  • FACT: The U.S. national debt reached $10 trillion on September 30, 2008.

You Will Need

  • Lower interest rates on your credit cards
  • A card with no interest for six to 12 months
  • A debt consolidation loan
  • home equity loan
  • or home equity line of credit
  • Discipline

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