||Ask Dr. Don
Dealing with high credit card
I have gotten myself in a significant amount of credit card debt.
I spoke with a financial adviser, and he told me the best solution
is to apply for a low interest rate credit card and transfer all
my balances and pay off that credit card in an aggressive manner.
This would be a great idea, but I can't get approved for another
credit card. Is it worth me asking someone to co-sign and get such
a card? Or should I just continue paying them off one by one?
That's the problem with those low interest rate balance transfer
offers. The people who could really benefit from them don't qualify
for the offer.
Asking a friend or family member to co-sign for a
credit card isn't a very good solution. They become legally responsible
for the card balance, and you could wind up hurting their credit
rating, too. That's a high price to pay for a few months of debt
at a lower interest rate.
What is the answer? Debt consolidation can work if
you have equity in your home. If you can't see a way out, then credit
counseling will help you put together a repayment schedule, and
the counselor may be able to reduce the interest rate on your outstanding
credit card debt. Credit
counseling will hurt your credit rating, but won't hurt it as
badly as filing for bankruptcy; which is a last resort.
If you decide to work it out on your own, then concentrate
on paying down the balances on the credit card with the highest
interest rate while making minimum payments on your other cards.
You are trying to make more of your monthly credit
card payments go toward paying down principal instead of paying
finance charges and fees. By paying down the card balance on the
most expensive card you are reducing the total finance charges on
next month's bills.
Assuming that you've put the brakes on spending and
you keep paying more than the minimum payment, you'll see that card's
balances start to come down. Soon you're ready to take on the next
card. Before you know it you'll qualify for that low interest balance
transfer offer on your own. This Bankrate
card calculator can help you set up a payment schedule.
You didn't get into debt overnight, and you won't
get out of it overnight. But you should be able to turn things around.
Then you can start thinking about investing for your future instead
of spending all your money on credit card interest.
-- Posted: July 27, 2001