8 Effective Ways to Consolidate Credit Card Debt

Millions of Americans carry balances on several credit cards, juggling payments and watching interest spiral out of control. That’s a problem. Consolidating your credit cards may be the solution. 

But does it make sense for your financial situation? That will depend on how much you owe, your income, your credit score, your commitment to paying off your debt and other various factors. The key is to find the method that works best for you.

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Disclaimer: Credit Summit may be affiliated with some of the companies mentioned in this article. Credit Summit may make money from advertisements or when you contact a company through our platform.

Key Points

  • Consolidation won’t help if you keep running up debt
  • It’s OK to contact your creditors to ask for hardship exemptions
  • Most consolidation options require a new loan, so it’s best to know your credit score
  • Hiring a professional may seem like it costs more, but actually could end up costing less than repaying the full amount you owe

Eight Ways to Consolidate Credit Card Debt

These are the eight most effective methods to pay off your credit card debt.

1. Balance Transfer Credit Cards

Balance transfer cards let you move balances from your old credit cards to a new credit card. Credit card issuers 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. However, these cards require a good credit score, so this isn’t the best option for people whose credit is less than ideal.

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, 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.

READ MORE: Best balance transfer credit cards

2. Apply for 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 balances with a personal loan is simple.

  • Take out a personal loan with a lower rate
  • Pay your credit card balances with the loan
  • Make one single payment each month

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.

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.

SoFi, personalloans.com and badcreditloans.com offer reasonable products for debt consolidation.

READ MORE: Best personal loans

3. Hire a Professional

Sometimes the best way to pay off multiple credit cards is to work with the experts. Two of the most common strategies are building a debt management plan or reaching a debt settlement.

Debt Management Plan 

By visiting a nonprofit credit counseling agency, you can work with a counselor to design a debt management plan (DMP) to repay your credit cards. This can make your debt more manageable to pay back as the counselor will create a plan in agreement with your creditors that rolls multiple loans together into a single debt, typically with a lower interest rate.

READ MORE: Complete guide to credit counseling

Debt Settlement Company

By working with a debt settlement company, you can negotiate with your creditors to reduce your debt total. The company will offer a lump-sum payment to the creditor in exchange for a portion of the debt being forgiven, usually up to a max of 50% of the original loan.

READ MORE: Here are our top picks for best debt settlement companies

4. 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. 

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.

READ MORE: What is a second mortgage?

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 7.73%. It’s usually a variable rate.

Use caution with either of these methods. If you can’t make the payments, you’re risking foreclosure.

5. 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.

Check your company’s requirements. Some require you to pay the entire loan back in full if you change jobs or are laid off.

6. 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. Also, if you can’t repay the debt, your car could be repossessed.

Pro tip: Avoid title loans. These are short-term loans secured by a vehicle. They have extremely high interest rates, often over 300%.

READ MORE: 16 options that are better than title loans

7. 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, Prosper, Upstart and Upgrade broker loans on terms similar to personal loans. 

READ MORE: Peer-to-peer lending for bad credit

8. File For Bankruptcy 

Bankruptcy should be considered an absolute last resort option and only one you’d make if you exhausted all other routes. There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. The main difference between the two is how you repay your debt. With Chapter 7, you’ll surrender all your non-exempt property to pay off your debt. Chapter 13 meanwhile involves creating a court-mandated repayment plan lasting three or five years to cover your debt.

This option will ruin your credit score for 10 years and certain types of debt won’t be forgiven (like student loans), but it could offer you a fresh start from credit card debt if you’re in dire need. It could also offer protection if you’re facing foreclosure.

Why Consolidate 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 to Make Credit Card Consolidation Work for You

The average American has three or four credit cards. That also means three or four monthly bills and — sometimes — 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.

Complete these first three steps before you choose the method you want to try. We’ll get back to this later, but before you start, you need to:

  • Consider why you’re in debt
  • Make sure the statute of limitations hasn’t expired
  • Contact your creditors and ask for help
  • Learn your credit score

Once you’ve completed those three things, you’re ready to choose how you want to consolidate your debt.

Credit Card Consolidation vs. Refinancing: What’s the Difference?

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

  • Debt refinancing: Refinancing involves renegotiating the terms of a single 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 a single 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.

Pro tip: If you’re considering rolling one loan into a new loan with a lower interest rate, it is refinancing. If you’re using a new loan to pay off two or more other debts, it’s consolidation.

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

What to Do Before You Start

As previously mentioned, there are a few steps you need to take to be prepared for the debt consolidation process.

Pro tip: None of these are particularly difficult or time-consuming, but seeing the total of your debt and monthly expenses could be a harsh reality check. If it is, don’t get discouraged. You’re on the right track.

Assess Your Debt

Figure out why you’re in debt. Look through your credit card bills to figure out the total amount you owe. If you don’t know where you stand, coming up with an effective repayment strategy will be challenging. Once you know how much debt you have, start thinking about which loan you want to tackle first, and what the minimum payments are you’ll have to make on your other debts.

Track Your Income and Spending

Start tracking your income and spending to get a sense of how much money to put towards monthly credit card repayment. Make sure you aren’t regularly spending more than you earn. Budgeting apps like Goodbudget and EveryDollar can be great for making it easy to see where all your money goes. Ensure that you track all of your monthly payments, expenditures, loans (including credit card, student, car), groceries etc. and your total interest charges so you know how much your debt is growing.

Check Your Credit Reports

People with bad credit pay the highest interest rates. By regularly checking your credit reports, fixing any errors you might find, and working to boost your credit score, you will have better loan options and more financial freedom. There are three major credit bureaus: Experian, Equifax and TransUnion. You get one free credit report from each per year. Some services will even give you a score boost for making your monthly subscription payments.

The most common credit score is FICO Scores, which are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: Payment history (35%), credit utilization (30%), length of credit history (15%), new credit (10%) and credit mix (10%). The scores go from 300-850 with rough ranges looking like this:

  • Poor credit: 300–600
  • Fair credit: 601–660
  • Good credit: 661–780
  • Excellent credit: 781–850

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.

By making on-time payments and keeping your credit utilization low, you can start building your credit score month by month.

Downsize and Reduce Expenses

Downsizing and cutting expenses is a smart way to stretch your budget. Moving to a cheaper place, getting a less expensive car/paying off your auto loan or canceling subscriptions can all help you allocate more money toward repaying your debt. Finding a roommate to share in expenses is another great strategy.

Set Some Money Aside for Emergencies

Once you’ve gotten a handle on your credit card bills, you can put more money into savings. This can help you build an emergency fund, start investing in your retirement, or enable you to save up for a big purchase. The only way to successfully become debt-free is to be realistic when budgeting. Make sure any monthly payment for a consolidation loan (or any other method you choose) leaves you with enough breathing room to afford day-to-day expenses.

What NOT to Do

Don’t ignore your debts.

It’s tempting to pretend the debt doesn’t exist or rationalize that everyone has credit card debt. The sooner you address the problem, the easier it will be to fix. Here are a few ways to regain control of your financial situation.

The Next Steps

Credit card consolidation is a positive step, but there’s more to do.

  • 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.
  • Pay any balance on your cards on or before the due date.
  • 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.

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, meaning 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. Here are some of the best balance transfer credit cards available.

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.

Does Credit Card Consolidation Make Sense for You?

Is credit card consolidation the right move for you? Ask yourself these questions.
-Are you carrying balances on several cards?
-Do you want to reduce the total you pay in minimum monthly credit card payments
-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.

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