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When you have multiple credit card bills, it can sometimes feel like you’ll never get ahead. Consolidating your credit card debt can be a smart way to relieve stress, streamline your payments, and get lower interest rates — but you need to read the fine print, as you may pay more in the long run.
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Are you in over your head? Do you have several different credit card bills arriving at your house every month, making it difficult to keep up with the payments?
Then you might be wondering how to consolidate credit card debt. Here’s a little bit more about the process, followed by three strategies we recommend (and two we don’t).
Consolidating credit card debt occurs when you pay off the debt from multiple cards with either another credit card, a new loan, or a debt management program.
By doing so, you’ll be able to transition from multiple bills and due dates to a single monthly payment. This can reduce stress and overwhelm, as well as the likelihood you’ll miss a bill.
When you consolidate, you might be able to snag a lower interest rate, too. This will allow more of your payments to go toward the principal, helping you get out of debt faster.
Some credit card debt consolidation options also stretch your debt over a longer loan term, thereby reducing the amount you must pay each month. Just know this likely means you’ll pay more interest over time.
Lastly, it’s worth noting that most credit card consolidation strategies incur fees.
But, if consolidation will allow you to pay off your debt in a timely manner (and with less stress), it might be worth it. Just make sure you understand exactly how much consolidation will cost before signing on the dotted line.
While there’s no one best way to consolidate credit card debt, there are several good options. We’ve reviewed their pros and cons below.
For the first two, you’ll typically need good to excellent credit to qualify. So if you have bad credit, consider skipping directly to debt management programs. (If you’re not sure, here’s how to check your credit scores.)
If you are struggling with credit card debt, one of your first steps should be calling your credit card issuer to ask if it can lower your interest rates or minimum payments.
Wondering how to consolidate credit card debt on your own? This is one of the easiest DIY methods.
Also known as credit card refinancing, it simply requires you to apply for a new credit card, then transfer the balances from your old cards over to it.
There’s a whole category of credit cards devoted to this purpose — they’re known as balance transfer credit cards, and they often offer a 0% introductory APR on transferred balances for a certain period of time. If you pay off the balance before this interest-free period ends, all you’ll have paid was the balance transfer fee.
Don’t use your balance transfer card for everyday spending. Once you’ve transferred a balance to a card, you usually won’t receive a “grace period” on your purchases — and will thus start accruing interest as soon as you swipe.
You can also consider taking out a personal loan to consolidate credit card debt. The strategy is pretty simple: Once the loan has been disbursed, you use it to pay off your credit card balances.
The result is you won’t have to contend with multiple payments, and will just focus on paying off the personal loan (aka debt consolidation loan or credit card consolidation loan) each month. These loans are usually fixed rate, which means that, unlike credit cards, their interest rates won’t fluctuate.
Some lenders will pay your credit card companies directly; others will transfer you the money, which you can use to pay off the balances yourself.
In one U.S. News Survey, 59% of respondents didn’t bother getting pre-approvals from more than one lender. This is a missed opportunity, as shopping around is the only way to know you’re getting the best loan to consolidate credit card debt.
While balance transfer cards and personal loans can provide an easy way to consolidate credit card debt, they’re only smart if you have fair or good credit scores.
If, on the other hand, you have bad credit and need help figuring out how to best consolidate credit card debt, you might want to reach out to a nonprofit credit counseling agency.
It will analyze your bills and help you figure out a plan of attack, which might include a “debt management plan” (DMP). When you sign up for a DMP, you’ll make a single payment to the credit counseling agency each month. With that money, it will pay the credit card companies.
It’ll also freeze your credit cards, preventing you from making additional charges or opening new cards. This could be a pro or a con, depending on how you look at it — if you don’t want your cards frozen, try a debt repayment service like Tally instead.
Watch out for debt relief or debt settlement companies, which are very different from credit counseling agencies. They use risky practices that can damage your credit scores and result in high fees; as the CFPB warns, they “may well leave you deeper in debt than you were when you started.” The only situation in which you might use debt settlement companies is if your debt has already been sold to collection agencies.
You can also consolidate debt with home equity loans. You’ll apply for a loan with your house as collateral, then use that loan to pay off your credit cards.
Since your loan is secured by your house, you could get really low interest rates — but if you fall behind on payments, you could lose your home. In our opinion, that’s way too risky.
You also may have heard you can take a loan from your 401(k) to pay down credit card debt. We’d advise against this option because, if you don’t pay back the loan within five years, you’ll have to pay taxes and early withdrawal fees. And if you lose your job, you’ll have to repay the loan within 60 days. That’s not to mention the fact you’ll miss out on the compounding returns that will help you retire someday.
No matter which credit card debt consolidation option you choose, you should first take several steps to avoid falling into debt again.
The bottom line: Consolidating credit card debt can be a great way to get control of your payments and eventually become debt-free. But it will only benefit you in the long run if you permanently change your spending habits.
Susan is a freelance writer who specializes in turning complex financial topics into engaging and accessible articles. She's been writing about personal finance for six years, and was previously the senior writer at The Penny Hoarder and a staff writer at Student Loan Hero. Her personal finance writing has also appeared in publications like MarketWatch and Lifehacker.
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