MomResponds.com: Ask Questions, Get Answers

Question: Dear Luise: We have about $17,000 in credit card debt, but I’m paying well over the minimum each month and have all but one under half of the allowed credit on each card. My question is, if we take out a consolidation loan and pay them all off, what will that do to our credit rating? Sometimes I think I’m doing the right thing and find out that it worked against us on our rating. Q.

Answer: Dear Q.: You are perfectly safe in doing a consolidation. People who have great credit ratings often move their debt around to take advantage of lower rates on special offers connected with balance transfers. However, always read the fine print. Sometimes there is a time limit for the decreased rate of interest.

For those who don’t watch carefully, a lower payment following a consolidation may become an incentive to create more debt. Be very careful you don’t fall into that trap. And by the way, good for you for making larger monthly payments than required. Very wise because it offsets the interest rate.

The best way to use credit is to pass on credit cards because of their high rate of interest and painful penalties for late payments. Keep one for the simple reason that they are handy but/and pay off the balance in full every month.

If at all possible, obtain a line of credit for a reasonable amount from your bank to use when necessary. Then, keep it paid down. See how low you can get the interest because paying out interest can become a bad habit. If you can limit that to a home mortgage and a car payment you can pocket the savings.

Deficit spending is a way of life for many people today. It is costly. The smart thing to do is to pay off your incidental debt. Once you don’t have those monthly payments to make, you can start doing some serious saving…borrowing from and repaying yourselves when necessary. It takes some patience to move from instant gratification to a more responsible attitude toward money and spending but the rewards are huge. And if and when a crisis comes, it could save your bacon. Blessings, Luise

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