How to Consolidate Credit Card Debt: Here Are 4 Options
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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).
The Benefits of Consolidating Credit Card Debt
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.
1. Balance Transfer Credit Cards
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.
- Most balance transfer cards have a 0% APR introductory period. Which means you won’t pay any interest on the transferred balance for a set amount of time (usually 6–24 months). Here’s a list of cards with no balance transfer fees and 0% APR.
- You’ll typically need good credit scores to qualify (though you may have luck with fair/average credit).
- You’ll usually have to pay a balance transfer fee of around $5 or 3% of the balance transferred, whichever is greater. So if you transfer $10,000 of credit card debt, it’d cost $300. If you’re paying high interest on your current cards, however, this might be worth it.
- Late payments may cause your credit card issuer to cancel the promotional balance and begin charging higher interest rates.
- If you don’t pay off the entire balance during the promotional period, you’ll be on the hook for (probably high) interest rates on whatever remains.
- The amount of debt you’re transferring (including fees) must be lower than your credit limit. If you have high balances, this may not be adequate, but you can transfer partial balances.
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.
2. Personal Loans
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.
- You’ll have one fixed monthly loan payment, which is easier to budget for.
- You can apply for “pre-qualification” with several lenders, which will let you see potential rates without incurring a hard pull on your credit reports.
- Your credit scores may improve, as you’ll be paying off revolving credit card debt (which can negatively impact your scores) with an installment loan (which doesn’t have a severe impact). This will probably cause your credit utilization ratio to decrease, potentially boosting your scores.
- You need good credit scores to qualify for low interest rates.
- You may have to pay a loan origination fee (sometimes hundreds of dollars).
- You could be tempted to put new charges on your credit cards once they’re paid off with the loan, leaving you with more debt than when you started.
- Lenders sometimes stretch out the length of your loan, which makes for lower monthly payments but higher overall costs. Be sure to calculate the total cost of your loan before moving forward.
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.
3. Debt Management Programs
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.
- Your credit counselor will usually negotiate with your creditors to secure a lower interest rate or longer repayment term, thereby lowering your monthly debt payments.
- Credit counseling agencies specialize in education, and will help you create a budget and hopefully avoid future debt.
- You’ll usually need to pay a monthly fee to the credit counseling agency.
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.
4. Home Equity Loans
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.
- Low interest rates for those who qualify.
- If you default, you could lose your home. Or, if your home’s value plummets, you could risk going “underwater” on your loan.
- You may have to pay closing costs on the loan, which can run from hundreds to thousands of dollars.
- The process can take several weeks to several months to complete.
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.
What to Think About Before Consolidating Credit Card Debt
No matter which credit card debt consolidation option you choose, you should first take several steps to avoid falling into debt again.
- Examine your spending habits: How did you get into credit card debt? Was it a one-time emergency, or was it a pattern of spending more than you could afford? If it was the latter, you need to think carefully about how you’ll avoid that in the future — either by earning more, spending less, or both.
- Make a budget: Once you’ve figured out what your credit card debt repayment will be each month, it’s time to create a budget. Get a solid picture of your financial situation by tallying what’s going in and what’s going out, and ensuring you’ll have enough to make your consolidation payment each month.
- Don’t put new debt on the old cards: Once you’ve removed the debt on your current credit cards, either with a balance transfer or loan, it can be tempting to rack up new charges. To avoid this worst-case scenario, cut up your credit cards. (Don’t close them, as that could have a negative impact on your credit scores.)
- Stick with it: Debt repayment can be frustrating and exhausting. So make sure you find a plan that you can follow for the long term. Keep track of your progress to remind yourself that you are getting somewhere — and that, by choosing a debt repayment plan, you will eventually see a light at the end of the tunnel.
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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