5 Ways To Consolidate Credit Card Debt


Credit card debt consolidation is a strategy that takes multiple credit card balances and combines them into one monthly payment.

Consolidate your debt is ideal if the new debt has a lower annual percentage rate than your credit cards. This can lower interest charges, make your payments more manageable, or shorten the repayment period.

The best way to consolidate will depend on the amount of your debt, your credit score, and other factors.

Here are the five most effective ways to pay off your credit card debt:

  1. Refinance with a balance transfer credit card.

  2. Consolidate with a personal loan.

  3. Start a debt management plan.

1. Balance transfer card

  • 0% APR introduction period.

  • Requires good to excellent credit to qualify.

  • Typically, a balance transfer fee is charged.

  • A higher APR takes effect after the introductory period.

Also called credit card refinancing, this option transfers credit card debt to a balance transfer interest-free credit card for a promotional period, often 12 to 18 months. You will need good to excellent credit (690 or higher on the FICO scale) to qualify for most balance transfer cards.

A good balance transfer card won’t charge an annual fee, but many issuers charge a one-time balance transfer fee of 3-5% of the amount transferred. Before choosing a card, calculate whether the interest you save over time will offset the cost of the fees.

Try to pay off your balance in full before the 0% APR introductory period ends. Any balance remaining after this date will have a regular credit card interest rate.

2. Credit card consolidation loan

  • The fixed interest rate means that your monthly payment will not change.

  • Low APR for good to excellent credit.

  • Direct payment to creditors offered by some lenders.

  • It’s hard to get a low rate with bad credit.

  • Some loans have origination fees.

  • Credit unions require membership to apply.

You can use an unsecured personal loan from a credit union, bank, or online lender to consolidate a credit card or other types of debt. Ideally, the loan will give you a lower APR on your debt.

Credit unions are nonprofit lenders who can offer their members more flexible loan terms and lower rates than online lenders, especially for borrowers with average or bad credit (689 or less on the FICO scale ). The maximum APR charged to federal credit unions is 18%.

Bank loans offer competitive APRs to borrowers with good credit, and benefits to existing bank customers can include larger loan amounts and rate reductions.

Most online lenders allow you to pre-qualify for a credit card consolidation loan without affecting your credit score, although this feature is less common among banks and credit unions. Prequalifying gives you an overview of the rate, loan amount, and length of time you might get once you officially apply.

Look for lenders who offer special features for debt consolidation. Some lenders, like To pay, specializing in credit card debt consolidation. Others, like Discover, will send the loan funds directly to your creditors, simplifying the process.

Not sure if a personal loan is the right choice? Use our debt consolidation calculator to enter all of your debt in one place, see typical lender rates, and calculate savings.

3. Home equity loan or line of credit

  • Lower interest rates than personal loans.

  • May not require good credit to qualify.

  • The long repayment period keeps the payments lower.

  • You need the equity in your home to qualify, and a home appraisal is usually required.

  • Secured with your home, which you can lose in the event of a default.

If you own a home, you may be able to take out a loan or line of credit against the equity in your home and use it to pay off your credit cards or other debts.

A home equity loan is a lump sum loan with a fixed interest rate, while a line of credit works like a credit card with a variable interest rate.

A HELOC often requires interest payments only during the drawdown period, which is typically the first 10 years. This means that you will have to pay more than the minimum payment due to reduce principal and reduce your overall debt during this period.

Since the loans are secured by your home, you will likely get a lower rate than you would find on a personal loan or credit card with balance transfer. However, you can also lose your home if you don’t pay.

4. 401 (k) loan

  • Lower interest rates than unsecured loans.

  • No impact on your credit score.

  • This can reduce your retirement fund.

  • Heavy penalty and fees if you cannot refund.

  • If you lose or quit your job, you may need to repay your loan quickly.

If you have an employer sponsored retirement account such as a 401 (k) plan, taking out a loan is not advisable as it can have a significant impact on your retirement.

Think about it only after you rule out balance transfer cards and other types of loans.

One of the advantages is that this loan will not show up on your credit report, so there is no impact on your score. But the downsides are significant: If you can’t repay, you’ll have to pay a hefty penalty plus taxes on the unpaid balance, and you could end up with additional debt.

Plus, 401 (k) loans are usually due in five years, unless you lose your job or resign; then they are due on the tax day of the following year.

5. Debt management plan

  • Can cut your interest rate in half.

  • Doesn’t hurt your credit score.

  • Start-up costs and monthly fees are common.

  • It can take three to five years to pay off your debt.

Debt management plans consolidate several debts into a single monthly payment at a reduced interest rate. It works best for those who are struggling to pay off their credit card debt but are not eligible for other options due to a low credit score.

Unlike some credit card consolidation options, debt management plans do not affect your credit score. If your debt is more than 40% of your income and cannot be repaid within five years, then bankruptcy may be a better option.

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Frequently Asked Questions

Debt consolidation combines multiple debts, such as credit cards or high interest loans, into one payment.

Debt consolidation might be a good idea for you if you can get an interest rate that is lower than what you are currently paying on your debts. It would lower interest charges, lower your monthly payment, or help you pay off debt faster.

Your credit score can temporarily drop when a lender or card issuer does a serious credit investigation. But if you pay on time and avoid going into debt in the future, the overall effect could be positive.


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