8 Ways to Consolidate Your Credit Card Debt

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Millions of Americans carry balances on several credit cards, juggling payments and watching interest spiral out of control. That’s a problem. Credit card consolidation can be a solution.

Stuck with credit card debt?

Credit Summit may be able to help.

Why Consolidate Your Credit Card Debt?

Credit card consolidation offers these advantages:

  • Lower costs: consolidation can lower your interest rate.
  • Simpler finances: replace multiple bills with a single monthly payment.
  • Easier budgeting: one consistent payment is easier to manage than many varying payments.
  • Lower credit utilization: replacing credit card debts with an installment loan can reduce credit utilization and improve your credit score.

Credit card debt consolidation won’t eliminate debts, but it can reduce interest costs and make debts easier to handle.

How Does Credit Card Consolidation Work?

The average American has three or four credit cards . That means three or four monthly bills. It can also mean large interest payments.

Credit card consolidation uses a new credit line to pay off those balances. You replace your current credit card accounts with one new account.

There are several ways to consolidate credit card debt. It’s important to choose the one that meets your needs.

What Is the Difference Between Credit Card Consolidation and Debt Refinancing?

Consolidation and refinancing are similar. Many people get confused over the differences.

Debt Refinancing

Refinancing involves renegotiating the terms of an existing loan. It is usually used for large loans, like mortgages, car loans, or student loans .

Refinancing can also replace an existing loan with a new one with better terms.

Credit Card Consolidation

Consolidation replaces several old debts with one new one. You use a new line of credit to pay off two or more existing debts.

Refinancing is a one-to-one replacement. Debt consolidation replaces two or more debts with a single new credit line.

Eight Ways to Consolidate Credit Card Debt

Let’s look at some ways to consolidate credit card debt.

1. Balance Transfer Credit Cards

Balance transfer cards let you move balances from your old credit cards to a new card. Credit card companies regularly offer an introductory period with little or no interest on your transferred balances. If you pay the debt within this period, you only end up paying the principal.

Here’s an example:

You have three credit cards with a combined balance of $9,000. The average annual percentage rate is 19%. If you pay $500 monthly, you’ll pay off the cards in 22 months with $1,678.42 in interest.

Instead, for example, you could apply for the BankAmericard credit card . It has no annual fee and a 0% APR for 18 billing cycles. You transfer your balances to that card. There’s a 3% transfer fee, or $270.

If you pay $500 a month, you will pay the debt in 18 months, with no interest. You’ll save $1,408.

The Pros

  • You’re paying the principal owed, not interest.
  • You’ll have another open credit line on your credit report.

The Cons

  • Balance transfer cards require good credit.
  • The 0% APR offer won’t apply to new purchases.
  • Many cards have balance transfer fees.
  • Most credit card issuers won’t let you transfer a balance from their own cards.
  • If you don’t pay the debt within the introductory period, you will pay the card’s normal interest rate.
  • If your credit card payment is late, you’ll be charged a late fee, and the issuer may cancel the introductory APR and raise your interest rate.

If your credit is flawed or your balances are too large to pay within the introductory period, consider other ways to consolidate credit card debt.

2. Use a Debt Consolidation Loan or Personal Loan

A debt consolidation loan and personal loan are similar, but a debt consolidation loan usually has a higher interest rate. A debt consolidation loan can be a good option if your credit score isn’t high enough to qualify for a personal loan.

Consolidating your credit card debt with a personal loan is simple.

  • Take out a personal loan.
  • Pay your credit card balances with the loan.
  • Pay the personal loan only.

A fixed-rate credit card consolidation loan offer from your bank or credit union will have a fixed interest rate and the convenience of one consistent monthly loan payment at a lower interest rate.

How does it work? Let’s use the same scenario: three cards, a combined balance of $9000, and a 19% average APR. At $300 a month, it will take you 42 months to pay. Your total interest would be $3,305.31.

So you get a 36-month personal loan for $9000 at an 11% APR. You’ll pay $294 a month. Your total interest will be $1,607.34. You’ll save almost $1700. You will also reduce your credit utilization.

The drawback: you need to have good credit to qualify for a personal loan with a low APR. Check with your financial institution or credit union to learn about the loans they offer, whether they charge any origination fees or if they have any minimum credit requirements.

3. Use Your Home Equity

Aside from a mortgage refinance, which can be time-consuming, expensive and require good credit, you can tap your home equity for credit card consolidation. There are two ways to do this.

The First Way: A Home Equity Loan

A home equity loan is an installment loan secured by your home. They offer easier approval and lower interest rates than personal loans. Credit requirements are generally low.

The average interest rate for a 15-year home equity loan is 5.36%. The longer loan term keeps monthly payments down.

Lenders often limit the loan to 85% of your equity in your home, which is the home’s value minus the remaining balance of your mortgage.

The Pros
  • Low credit score requirements.
  • Low interest rates.
  • Loan amounts can be relatively high if you have enough equity.
  • Reduced credit utilization.
The Cons
  • You’ll need to own a home and have enough equity.
  • You will pay closing costs, usually 2% to 5% of the loan amount.
  • If home prices fall, you could owe more than your home is worth.
  • Some lenders have a loan minimum, often $35,000. That may be more than you need for credit card consolidation.
  • You may not be able to sell your home without adding money.
  • If you default, you could lose your home.

A home equity loan is a useful way to consolidate debt if you have credit issues, own a home and don’t plan to move soon.

The Second Way: A Home Equity Line of Credit (HELOC)

A HELOC is a revolving credit line. You can keep drawing as long as you stay below the credit limit. Many HELOCs have a “draw period” when you draw money and pay only the interest. After the draw period, you make monthly payments on the principal and interest.

The current average rate on a HELOC is 5.61%. It’s usually a variable rate.

The Pros
  • Low interest rates.
  • You draw only what you need.
  • Long repayment terms. Many HELOCs have a 10-year draw period and a 20-year repayment period.
  • Easy approval.
The Cons
  • High credit limits, easy withdrawals, and low initial payments may tempt you to take on more debt.
  • Payments can jump after the draw period.
  • You may pay fees.
  • Your interest rate could rise.
  • If you default, you could lose your home.
  • An additional lien on your home could make it difficult to sell.

For more information on HELOCs and home equity loans, review this guide .

4. Borrow From Your 401(k)

A loan from your 401(k) is a loan from yourself. There’s no credit check. It’s easy, and you can often do it online.

Regulations require a five-year payment schedule, but you can pay early without penalty. Payments can usually be deducted from your paycheck. There’s interest, but you pay it into your 401(k), so you’re paying it to yourself.

The Pros

  • Easy processing with no credit check.
  • Low costs.
  • Flexible terms.
  • No new debt.

The Cons

  • The money you borrow won’t be earning investment gains. This could affect your retirement planning.
  • If you don’t repay the loan it will be taxed as income. A 10% penalty may be imposed.
  • If you change jobs you will have to repay the loan, or the unpaid portion will be taxed as income. You may be assessed a 10% penalty.

A 401(k) loan lets you consolidate debt if you have credit issues and you don’t own a home.

5. Try Credit Counseling

What if your credit is poor, you don’t own a home, and you don’t have a 401(k)?

Consider consulting a credit counselor. A credit counselor can advise you on credit card consolidation and other debt-relief options.

Non-profit organizations usually do credit counseling, but it’s not free. Ask about fees and read agreements carefully. Be alert for debt relief and credit repair scams , and check this advice on choosing a credit counselor .

Most legitimate credit counseling services offer a free initial evaluation. That can help you decide if you want to work with the counselor.

6. Use a Debt Management Plan

Your credit counselor may recommend a debt management plan , which is a form of debt consolidation. You will make one monthly payment to your credit counseling service. You may also have heard the term debt settlement plan. The difference is that nonprofit credit counseling companies administer debt management plans, and debt settlement companies are for-profit. Both will pay your creditors and will negotiate to reduce your interest rates and balances. Be aware of the difference, so you don’t get hit with a surprise bill.

The Pros

  • Consolidate debts without a loan.
  • Experienced professionals will negotiate with your creditors.
  • Creditors may stop collection efforts.
  • You’ll have help with budgeting.
  • You can include all debts, not just credit card debt.

The Cons

  • Fees vary. Expect a setup fee of $50-$75 and a monthly fee of $25-$50.
  • You may have to close credit card accounts .
  • Plans take 3-5 years. Many people don’t complete them successfully .

A debt management plan is a large commitment. Be sure to learn more about them if you’re considering one.

You can create your own debt management plan. You’ll need to organize your debts, negotiate with creditors, schedule payments and make payments on time. Professional help may raise your chances of success.

7. Use Automobile Equity

It is possible to use a vehicle as collateral for a loan. Because the loan is secured, the lender may be willing to make a loan with lower interest and a lower credit score requirement than a conventional personal loan.

The amount you can borrow will be limited by your equity, which is the current appraised value of your vehicle minus any money you still owe on it.

You may have limited equity if you have a long-term car loan: vehicles depreciate fast. Your lender may want to approve your insurance policy. Local lenders are likely to be your best bet.

Avoid title loans. These are short-term loans secured by a vehicle. They have extremely high interest rates, often over 300% . That’s too high to use for consolidating debt or anything else!

8. Consider a Peer-to-Peer Lender

Peer-to-peer lending is a relatively new option. Platforms link borrowers with individual investors who are willing to lend them money.

Platforms like Peerform and Prosper broker loans on terms similar to those of personal loans. They will have a minimum credit score. P2PCredit will lend to borrowers with low credit scores.

The Pros

  • You can apply online.
  • The application process usually takes only a few days.
  • More flexible credit criteria than traditional lenders.

The Cons

  • Borrowers with low credit scores may pay high interest rates.
  • Peer-to-peer lending is not well regulated. Look into the platform’s reputation before closing a deal.

Peer-to-peer loans are similar to personal loans but with a different type of lender.

When Should You Consolidate Your Credit Card Debt?

Is credit card consolidation the right move for you? Ask yourself these questions.

  • Are you carrying balances on several cards?
  • Is it hard to organize monthly payments?
  • Have you missed payments or made late payments?
  • Are you making minimum payments?
  • Is it difficult to budget for credit card bills?
  • Is your credit utilization high?
  • Would a single monthly payment make life easier?
  • Does one of the methods described above seem practical to you?

Consider credit card consolidation if you answered “yes” to more than two of those questions.

Before starting the debt consolidation process, here are some tips to ensure you’re making the best choices for your specific situation.

What’s Next?

Credit card consolidation is a positive step, but there’s more to do. Start with the most important point.

Do not use your credit cards for anything but absolute essentials!

If you keep running up new charges, you will be paying off both your consolidated debt and your new high-interest debt. That’s a one-way street to trouble.

Use your cards as little as possible and pay any balance on your cards on or before the due date.

A Few Other Useful Tips:

  • Pay your consolidated debts on time. Late or missed payments will harm your credit and may risk your consolidation plan.
  • Keep your credit card accounts open unless you can’t resist the urge to use them. They will keep your credit utilization low and maintain your credit history .
  • Build an emergency fund. Putting away even a few dollars a month will help. You won’t have to fall back on high-interest loans if you have unexpected needs.
  • Set up a budget and stick to it.
  • If you can’t control your spending, seek help. Talk to friends, family, a credit counselor, or a therapist.

Keep Track of Your Credit

You have a credit report with each of the three major credit reporting bureaus: Experian, Equifax and TransUnion. You’re entitled to a free copy of your report from each one every year.

You can request free credit reports through annualcreditreport.com . Read them carefully. Make sure your consolidation is reflected within three months.

It’s important to monitor these reports regularly. You’ll need excellent credit to qualify for the lowest rates.

Many credit reports contain errors that can damage your credit score. Review this list of common credit report errors . Look for problems or signs of identity theft. If you find errors, you can dispute them yourself . Follow these steps if you see accounts that don’t belong to you, hard inquiries you didn’t authorize, or other signs of identity theft.

The Bottom Line

Credit card consolidation is not just a quick fix for a short-term debt problem. It’s an opportunity to change the way you manage money. That opportunity can help you build a better financial future that’s debt-free.


What’s the Difference Between a Secured and Unsecured Personal Loan?

Secured debt uses property as collateral to back the loan, while unsecured debt has no collateral attached to it. Because secured loans have collateral, the interest rates are usually lower and repayment terms longer.
Unsecured debt — like personal loans and credit cards — usually have higher interest rates and shorter terms, particularly for borrowers with less-than-stellar credit.

Should I get a New Credit Card to Consolidate My Debt?

It depends on your financial situation. Sometimes a new credit card comes with an introductory offer that means you won’t pay interest for several months. In that instance, getting a new credit card might be better, provided you can pay off the card during the introductory period.

Do Online Lenders Have Any Loan Options for People With Bad Credit?

Yes! There are both personal loans and installment loans that cater to borrowers with bad credit.

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