The Best Way to Consolidate Credit Cards

When it comes to consolidating debt, the best way to do it is the way that fits your situation and makes your life easier. Many people turn to debt consolidation companies for help, but if you are more of a do-it-yourself kind of person, then there are several ways to consolidate debt that do not involve paying a monthly fee to a debt consolidation professional. You do not need to have perfect credit to qualify for some of the credit card consolidation options available.

Transfer Balance

One of the easier ways to consolidate your credit card debt is to transfer your debt to one credit card account. According to CreditCards.com you will want to pay attention to the balance transfer terms before committing to a transfer account. While many credit companies advertise a zero percent interest rate for transferred balances, there are usually rate increases after a pre-determined period of time. There are some very good transfer deals available, you just need to be sure to read all of the conditions of transfer balances before signing the agreement to make sure you are getting an interest rate that will help you to pay off all of your credit card debt without breaking your monthly budget.

Personal Loans

Secured and unsecured personal loans are ways that your lending institution can help you to consolidate your credit card debt at a much lower interest rate. Even if the best interest rate you qualify for in a personal loan is around 12 percent, that should still be better than the nearly 20 percent you are probably paying on your credit card debt now. A secured personal loan requires personal property in the form of collateral to be used to back up the value of the loan. If you have less than perfect credit, you may still qualify for a secured personal loan. An unsecured personal loan allows people with good credit to get better interest rates and payback terms without using collateral.

Home Equity

If you have equity in your home, then you may be able to use it to help consolidate your credit card debt. Discuss your home equity options with your financial institutions and see which one is right for you. A home equity line of credit is normally an adjustable rate product that can see its monthly payments and annual interest rate vary from year to year. A home equity loan can be a fixed-rate product that gets you the same payment and interest rate for the life of the loan.

Which is Best?

The best way to consolidate credit cards depends on your financial situation. Transferring balances to a single card is the easiest way, but your credit may be helped more by eliminating the presence of credit card accounts and using a personal loan or home equity loan to consolidate credit. Using a loan may be less damaging to your credit than adding another credit card. Discuss your options with a certified financial planner or a reputable debt counselor to see which option is right for you.

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DIY Debt Consolidation

Whether your goal is to decrease your interest rate on your debt, lower your monthly payment or simplify your bills into one payment each month, debt consolidation can help. Although many credit counseling organizations offer debt consolidation services, they often charge a fee, and you can consolidate debts yourself through one of several methods.

How it Works

When you consolidate debts, you take out one large loan and use that money to pay off all the debts you are consolidating. Instead of having many monthly payments, you have just one. To determine how large your consolidation loan needs to be, add up the payoff amount for each of your current debts. These might be credit cards, personal loans, collection accounts and auto loans. You can consolidate all these types of debts.

Types of Consolidation Loans

Homeowners can take out a home equity loan to consolidate debts. These loans have lower interest rates than most other types of consumer credit. Another option is to obtain a personal loan from a bank or credit union. If you have a whole life insurance policy, you can borrow from that. If you are consolidating credit card debts, one short-term option is to open a new credit card with a low introductory interest rate and no balance transfer fee. However, the rate on the credit card will increase when the introductory period is over.

Considerations

For any type of consolidation loans, you might have trouble qualifying if your credit score has been damaged significantly. If you cannot obtain a loan on your own, you might have to seek assistance from a credit counseling organization. One of the benefits of professional help is that the counselors can advise you whether you should consolidate debt, enroll in a debt management plan or declare bankruptcy. In some cases, declaring bankruptcy can be a better solution than consolidating debt. When seeking credit counseling, research the company through the Better Business Bureau and obtain a listing of fees from the company before making an appointment.

Warning

Although debt consolidation might lower your monthly payment to provide immediate relief from your debts, you have not rid yourself of debt. You still owe the same amount as before; you just owe it to a different lender. After consolidating debts, do not use your empty credit lines as a license to overspend again. You could find yourself even deeper in debt with higher monthly payments than before. This is especially dangerous if you consolidate with a home equity loan or refinanced mortgage, because falling behind on these payments could lead to foreclosure.

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How to Tell Your Spouse You're in Debt

It can be very emotionally draining to keep secrets from your spouse. If you have accrued debt that your partner is unaware of, it is not a secret you will be able to keep forever. The next time the two of you apply for credit or a loan, the outstanding debts on your credit report are likely to come up. In the event that you are unable to pay your debts, you could face damaged credit, a wage garnishment, a bank levy, or even a property lien. If you live in a community property state, your spouse is as liable for the debts as you are, even if he is ignorant of their existence. It is far preferable to be upfront about your debt problem so that you and your spouse can work together to solve it.

Instructions

1

Identify the underlying problem that caused you to go into debt initially. Are you a compulsive shopper? Do you have a problem keeping track of your account balances? Do you spend money only when you are depressed? Whatever the problem is, identifying it is the first step to working toward an acceptable resolution.

2

Make a tentative plan to pay off the debt before you confess. You may need to call a debt counseling agency or simply do a bit of strict budgeting. By planning out a way to salvage your financial future, you can show your spouse how important paying off your debt is to you and that you are already taking active steps to remedy the problem.

3

Choose the right time and place to talk about the debt problem. The issue should be discussed face-to-face when you are alone at home. Avoid confessing a debt problem to your spouse over the phone or via email. It is also a good idea to wait until children are asleep.

4

Confess everything. Even if you think that leaving out a small debt here and there may soften the blow, the truth will come out eventually. When it does, your partner will feel betrayed all over again. Tell the whole truth the first time.

5

Show remorse and apologize. You did not just rack up debt, you betrayed your spouses trust by keeping secrets. Showing your spouse how sorry you are will demonstrate how unlikely you are to commit the same offense twice.

6

Allow your spouse time to process the information. Your partner may want to leave for a few days or not speak to you for a while. Try not to get too hurt. People process problems differently, and this is a huge blow to your partners emotional and financial security. Back off and give him room to come to terms with the issue at hand.

7

Work together to rectify the problem. Discuss your plan to repay the debts with your spouse and listen to his ideas. Cooperation among the two of your will make the debts disappear much more quickly than if you were to attempt to pay them off on your own.

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How Is Accrued Interest Applied to a Judgment?

Accruing interest on your defaulted loan or credit card can inflate the total amount you owe when a creditor attempts to sue you to force repayment. Each state has varying rules for how to handle the interest rate of a court judgment, including adding the accrued interest straight to the amount you owe.

Pre-Judgment Debt Interest

A court may allow a creditor to capitalize interest accrued on your debt before suing you in civil court. This adds the accrued interest directly to the balance of the defaulted loan or line of credit, thereby increasing the total amount of debt you owe. The court may also add any accrued fees or court costs to the balance of your debt provided your creditor isn't tacking on unnecessary charges as a means of artificially inflating the total amount you must repay.

Post-Judgment Interest Rates

Each state across the country sets its own rules regarding the interest rates for court judgments. For example, as of July 2011 the interest rate for credit judgments in Pennsylvania is 6 percent while the interest rate in Colorado is 8 percent, according to BCS Alliance. Once a creditor secures a judgment against you, the creditor must abide by the state's cap on post-judgment interest rates when collecting the money you owe. It is illegal for a creditor to charge its own interest rate or additional fees when attempting to collect on a judgment.

Renewable Debt Judgments

Some states, including California, provide a legal means for a creditor to renew a court judgment against you and avoid the expiration of its statute of limitations. This allows a creditor to continue collection practices against you including wage garnishment. When the court grants a creditor a renewal of a judgment, any accrued interest on the debt up to the point of renewal capitalizes to the balance. The creditor can then charge interest per state regulations on the new larger debt balance.

Federal Court Judgments

A judgment obtained in federal court for a civil, criminal or bankruptcy debt carries different interest rate rules than claims at the state level. According to the United States Courts website, the interest rate for a judgment obtained in federal court varies by the weekly average one-year constant maturity yield controlled by the Federal Reserve System. A federal court may capitalize any interest existing on a debt prior to the judgment or eliminate the interest in favor of continuing with the federal system.

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Bankruptcy and Frozen Bank Accounts

Frozen bank accounts can have a devastating effect on your finances, making it impossible for you to use your debit card, write a check or withdraw cash for everyday living expenses. Debt collectors can obtain a court order allowing them to freeze, or garnish, your bank accounts because you failed to pay a debt obligation such as a credit card. People with frozen bank accounts often file for bankruptcy as they seek protection from the federal bankruptcy courts.

The Automatic Stay

A frozen bank account can be reopened in as little as one day following an official bankruptcy filing. People filing for bankruptcy are protected by an initial court ruling called an "automatic stay." Legal website Nolo.com reports that the automatic stay immediately halts all debt collection efforts and forces banks to remove freezes on bank accounts. That makes the automatic stay one of the most powerful components of bankruptcy protection. It is a key reason why many people file.

Civil Judgments

Bank garnishment and frozen accounts are possible only after the creditor or debt collector successfully sues you in civil court and wins a judgment, according to the Neighborhood Economic Development Advocacy Project, a nonprofit consumer assistance organization. A judgment in a debt lawsuit states that you defaulted on a credit account and that you legally owe the creditor or debt collector a specific amount of money. From there the creditor or debt collector can ask the judge to allow your bank accounts to be frozen.

Withdrawing Funds

The creditor or debt collector can begin withdrawing money from your bank account to satisfy the judgment after the civil court approves the garnishment. The debt collector can withdraw the amount that you owe in a lump sum or withdraw it in installments as it becomes available. While the bank account is frozen you cannot withdraw money, use your debit card to get cash or write a check. Money such as the direct deposit from your paycheck can, however, be deposited into your accounts. That makes it easy for the debt collector to withdraw money each time you are paid.

Default Judgments

Bank accounts often are frozen after someone being sued for an unpaid debt fails to show up in court for a scheduled hearing before a judge. That results in a default judgment in favor of the creditor or debt collector. By failing to show up in court you forfeit your rights and allow the creditor or debt collector to win the case without having to prove the case. "The New York Times" reported in 2010 that creditors and debt collectors were increasingly turning to the courts for help in collecting debts, and counted on receiving default judgments as a key part of their strategy.

Avoiding Garnishment

Paying attention to legal notices about unpaid debt is vitally important for avoiding bank garnishment and frozen accounts. The creditor or debt collector simply cannot gain access to your bank accounts without a ruling from a judge, and you have the right to be in court when that happens, if it happens at all. "The New York Times" reports that people who show up in court to defend themselves are often approached in the courthouse before the hearing by the opposing attorney who offers to settle the case on the spot. Settlement allows you to pay the amount owed, possibly in installments, and avoid garnishment and further collection efforts.

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What If Items Are Still on My Credit Report After 7 Years?

Items that appear on your credit report, whether positive or negative, will not appear forever. The Fair Credit Reporting Act (FCRA) sets a time limit each credit entry can remain before being removed by the credit bureaus.

Facts

Although many items in your credit report, such as past foreclosures or charged-off credit card debt, have a seven-year reporting period, not all debts do. Bankruptcies, tax liens and judgments all may remain on your report for longer than seven years.

Options

If you discover that the federal reporting period has expired on any item on your credit report, you may notify the credit bureaus that are reporting the entry by disputing the item. You may dispute by telephone, mail or online. The credit bureaus are then legally required by the FCRA to investigate your claim and, if the information is obsolete, remove it within 30 days.

Significance

The more recent a debt is, the greater an impact it will have on your credit score. Old credit report entries will still be visible to future lenders that conduct a credit check, but may only have a minimal effect on your credit score.

Misconceptions

The seven-year reporting period for overdue credit card and medical debt begins six months after your last payment. Because of this, the debts will legally appear on your credit report for a total of 7 years.

Effects

Items that remain on your credit report beyond the reporting period can cause you to be turned down for credit or prevent you from getting a good interest rate. Having these items removed is in your best interest to boost your credit score and maintain the accuracy of your credit report.

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What Income Is Exempt From Michigan Garnishments?

While Michigan law provides creditors with tools to recoup debts from debtors using the garnishment process, it also provides debtors with protections against over-aggressive debt collection that could further damage the debtor's finances. Creditors may reclaim their debts through periodic garnishments -- deductions from wages -- or nonperiodic garnishments -- one-time seizures of property -- although state law places limitations on the types and, in some cases, the amount of funds that may be garnished.

Federal and State Benefits

Michigan state law exempts many types of federal benefit programs designed to help retirees, the handicapped and the poor from garnishment proceedings. Social Security retirement benefits, and Social Security Supplemental Security Income benefits may not be garnished, nor may state-provided retirement benefits from the Michigan Retirement Act or U.S. Civil Service Retirement benefits. Benefits provided as part of the federal Aid to Families with Dependent Children, General Assistance Benefits and benefits provided by the Veterans Administration are also exempt from garnishment.

Savings

Nonperiodic garnishments may allow a creditor to recoup his debt by accessing a debtor's financial holdings, although Michigan provides some limits to the types of funds that may be garnished. Most savings accounts from a savings and loan may be garnished, save for a $500 balance that must remain in the account. Because present-day debts shouldn't derail a debtor's retirement planning, funds in IRAs are exempt from garnishment, similar to protections for retirement benefits. Distributions from IRAs aren't exempt from garnishment, however.

Insurance Benefits

Certain types of insurance proceeds lie beyond the reach of garnishments as well. Benefits provided from Michigan's worker's compensation program, both disability payments and medical costs, can't be garnished. Similarly, wage replacement benefits provided by the Michigan Unemployment Insurance Agency aren't a garnishable source of income. Neither the cash value of a life insurance policy nor the value of an annuity payable to a debtor's family may be garnished, although insurance payments from those policies may be eligible for garnishment in some cases.

Portion of Wages

In most cases, a periodic garnishment of a workers' paycheck is acceptable, although Michigan places limits on the amount a creditor may receive each paycheck. A debtor may not claim more than 25 percent of a worker's disposable income -- defined as the portion remaining after a court-determined cost of living amount is exempted -- and periodic garnishments are only valid for 91 days, so creditors may need to secure a writ of garnishment more than once to recoup garnishments periodically. Workers who receive minimum wage may have a smaller portion of their paycheck garnished than the 25 percent allowed by law.

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