One way to consolidate credit card debt is to transfer credit card balances into one low interest rate card. Many credit cards offer a low introductory annual percentage rate for balance transfers. The most cost-effective way to consolidate your balances is to request an optional balance transfer when applying for your card. That way, you pay no transaction fee for these initial balance transfers.

How much you actually save in finance charges depends on two things: how much you are transferring and what interest rate you are currently paying.

Once you transfer credit card balances to a low interest rate card, get rid of the old, high-rate cards. Call each credit card company and ask them to close your account. Make sure they record it on your credit report as "closed by the consumer" so it doesn't appear as though the credit card company closed your account because of late or delinquency payments.

Are there ways to consolidate debt?

Consider a home equity installment loan or home equity line of credit. Use these funds to pay off debts and begin making one monthly payment. Home equity loans usually offer lower interest rates than credit cards, and they also can offer great tax advantages. Shop around for the rate and terms that best meet your needs.

According to the Consumer Bankers Association, about 40 percent of home equity borrowers use the money to consolidate debt. However, these loans require your home as collateral. If you can't make the payments -- or if the payments are late -- you could lose your home.

• Home equity installment loan: With a home equity installment loan, you receive the full amount of the loan at one time. Your interest rate, monthly payment and term are fixed, so you will always know how much to budget during the life of the loan.
• Home equity line of credit: This arrangement allows you to borrow from a revolving line of credit with a variable interest rate. You can access your money when you need it simply by writing a check. You pay back only the portion of the money you use, and later you can borrow on those same funds. As a result, your payment may vary.

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