The Debt Tax: What Owing Money Costs You

3. Consolidate Credit Card Balances

If you qualify, consolidating your credit card balances on a low-interest rate credit card can reduce the amount your debt costs you by lowering the interest charges that accrue on your overall balance. You may want to consider a personal loan to consolidate debt as well – these loans tend to carry lower interest rates than credit cards and have a fixed monthly payment and term.

4. Avoid Paying Consolidation or Consulting Fees

Many consumers who find themselves mired in debt accrue more of it by paying fees to unscrupulous credit consolidators. Much what they will do for a fee you can do yourself by just taking the time to make a plan, pick up the phone, be assertive and untangle your finances.

5. Understand the Credit Effects

It’s a common credit misconception that carrying debt is good for your credit scores. In fact, carrying credit card debt can raise an important credit scoring stat – your utilization ratio. This number is the percentage of debt you charge to your total credit limit. Take our $1,000 example from above. If you carry that balance on a credit card with a $2,000 limit, you have a utilization of 50%. To achieve the best credit score you can, it’s important to keep this ratio under 30 percent, and 10 percentis even better. If you want to see where your utilization currently stands, you can see how it’s affecting two of your credit scores for free using tools on Credit.com.

When it comes to debt, there really are no free lunches. Indeed, it is always harder to get out of than it is to get into. The best thing you can do is to change your own thinking when it comes to money. When you are in debt, even the price tag has a price tag.

This article originally appeared in Credit.com.

Any opinions expressed in this column are solely those of the author.

Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.

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