Managing Your Debt
Feeling overwhelmed with debt? Youíre not alone.

According to, at the end of 2009, 78% of households in the United States had at least one credit card—with the average household carrying $15,788 in total credit card debt.1 In addition, you may have mortgage or rent payments, car loans, student loans, or unexpected medical expenses—all competing for your money. Itís all too easy to fall into debt. But, the sooner you take control, the closer youíll be to paying off your debt and saving more for your future.

Debt Consolidation

Debt consolidation may help you get on track to manage and pay down your debt faster. It is the process of rolling smaller loans and debts into one larger loan. You can do this in several ways:

  • Through a home equity loan or line of credit;
  • By transferring existing credit card balances to a new low- or no-interest credit card;
  • Through a debt consolidation loan; or
  • With the assistance of credit counselors or a debt management program.

Hereís a closer look at these options:

Home Equity Loan/Line of Credit
If you own your home, a home equity loan or line of credit may help you consolidate your existing debt. These loans are relatively easy to obtain if you have enough equity in your home to satisfy the requirements of the lender you choose. Plus, the interest you pay is generally tax deductible. The risk, however, is that you could lose your home if you default on the loan.

Whatís the difference between a home equity loan and a home equity line of credit?

  • A home equity loan is a loan that you take in a lump sum. It carries a fixed rate of interest.
  • A home equity line of credit works more like a credit card. A maximum amount of money is available for you to borrow, and your lender establishes a time limit for your loan. You can borrow money as you need it during your loan period, up to your maximum loan amount. Unlike a home equity loan, your interest rate isnít fixed. It will usually fluctuate during your loan period.

Credit Card Transfers
Transferring your existing credit card balances to a new low- or no-interest credit card may help you, but be sure to read the fine print first. The attractive advertised interest rates for these cards may be offered only to those with excellent credit ratings. Many of these cards offer a low interest rate for a short time, after which the rate can increase dramatically. Also, the rates may go up significantly if you have just one late payment.

Be sure you understand the terms of the rates and any other charges and fees if youíre considering this option. It may only make sense if you can pay off your debt before your new card issuerís low- or no-interest introductory period runs out. If you consider this option, be sure to shop carefully for the best terms and try to pay off your debt as quickly as possible.

Debt Consolidation Loan

A regular non-collateralized bank loan, often called a “personal loan,” is another option for consolidating your outstanding loan payments into one lower payment. Some lenders offer loans specifically for this purpose.

A debt consolidation loan offers you the convenience of paying one lender once a month (at one interest rate), rather than multiple creditors separately with different amounts and due dates.

Before choosing this option, verify that the new single payment is a better option for you in the long run. For example, if the term of your consolidation loan is longer than the terms of your existing debts, you may end up paying more in total interest charges—even if the interest rate under your consolidation loan is lower. Also, compare rates and terms from different banks and credit unions to find the deal thatís best for you.

Credit Counseling/Debt Management Programs
Another option to consider is professional credit counseling. Credit counselors can help you develop a plan to break your bad spending habits, establish a budget and reduce your debt.

If your financial problems are severe, your credit counselor may recommend that you enroll in a debt management program. Under such a program:

  • Your counselor may work out a payment schedule between you and your creditors.
  • You may receive lower interest rates and waived or reduced fees.
  • You may be required to deposit money each month with your counseling organization, which in turn will pay your creditors.
Things to keep in mind before you sign any contracts:
  • A debt management program may show up as a negative on your credit report.
  • Some agencies offer free services, while others charge for their assistance.

Additional Resources

1 Source: "The Survey of Consumer Payment Choice," Federal Reserve Bank of Boston, January 20102 - Calculated by dividing the total revolving debt in the U.S. ($796.5 billion as of December 2010 data, as listed in the Federal Reserve's February 2011 report on consumer credit) by the estimated number of households carrying credit card debt (54 million). Source:


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