How to consolidate credit card debt: 5 proven strategies

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Are you struggling to keep up with multiple credit card payments each month? Do high interest rates make it feel like you're barely making a dent in your balances? If you need some breathing room from your debt, debt consolidation may be the answer. 

There’s more than one way to consolidate your credit card debt. We’ll review your options, including how they work and the impact on your credit score, to help you make the right decision.

What is credit card debt consolidation? 

Debt consolidation involves combining multiple debts into a single payment, often with a lower interest rate. This can simplify your finances, reduce monthly payments, and help you pay off debt faster.

“Consolidating credit card debt can be quite helpful because it simplifies your monthly payments; instead of juggling various due dates and interest rates, you deal with just one. Plus, if you secure a lower interest rate, you’ll save money in the long run,” says Leslie Tayne, a debt relief attorney at Tayne Law Group. 

Is credit card debt consolidation a good idea?

Debt consolidation can be beneficial if you have multiple credit card balances with high interest rates and you're struggling to keep up with payments. If you can qualify for a lower interest rate than what you’re paying, it may help you save money. 

Debt consolidation is also best for those with a stable income who can commit to a repayment plan. 

However, it won’t replace the potential habits that got you into debt in the first place. The success of debt consolidation depends on your commitment to repaying your debt and avoiding new debt in the future.

Options to consolidation your credit card debt 

1. Balance transfer credit card 

Balance transfer credit cards can be an effective way to consolidate high-interest credit card debt and save money on interest charges. These cards offer a 0% APR promotional period, typically 12-21 months, during which you can pay off your transferred balances without incurring interest.

For example, let's say you have $10,000 in credit card debt across three cards with an average APR of 18%. Transferring your balances to a card with a 0% APR for 18 months could save approximately $2,500 in interest, assuming you pay off the balance within the promotional timeframe.

Before you open a balance transfer card, there are some factors to consider. 

• Almost all balance transfer cards charge a balance transfer fee (3%-5% of the transferred amount). 
• To qualify for the 0% APR offer, you’ll typically need to initiate the balance transfer between 60 and 120 days (depending on the card).
• Promotional periods are limited, and remaining balances will accrue interest at the regular APR.
• Most balance transfer cards require good to excellent credit to qualify 

Remember that applying for a new card may cause a temporary dip in your credit score, and transferring balances can increase your credit utilization ratio, which may lower your score. However, consistently making on-time payments and reducing debt can improve your score.

To maximize your balance transfer card, create a repayment plan to pay off your balance before the promotional period ends, and avoid making new purchases on the card. You should also compare cards for the longest promotional period and lowest fees.

Some of the best balance transfer cards include the Citi Simplicity® Card, Wells Fargo Reflect® Card, and Chase Slate Edge℠. 

2. Personal loan 

A personal loan is an unsecured installment loan that you can use for various purposes, including consolidating credit card debt. These loans can be another effective option for consolidating credit card debt, particularly if you can secure a lower interest rate than what you currently pay on your credit cards. 

Personal loans offer fixed monthly payments over a set term, making budgeting and repayment more predictable. 

To consolidate with a personal loan, compare offers from banks, credit unions, and online lenders. Once you find a loan with a competitive interest rate and favorable terms, apply for the loan and use the funds to pay off your credit card balances. You'll then make fixed monthly payments on the personal loan until it's paid off.

For instance, if you have $15,000 in credit card debt with an average APR of 20% and qualify for a personal loan with a 10% APR and a 5-year term, you could save around $5,400 in interest over the life of the loan. Your monthly payment would be approximately $318, which may be more manageable than multiple credit card payments.

However, personal loans require good credit to qualify for the lowest rates. Some lenders may also charge origination fees (usually 1-8% of the loan amount). 

3. Credit card consolidation loans 

A credit card consolidation loan is a personal loan used to pay off a credit card. These personal loans are usually disbursed directly to the borrower, while a credit card consolidation loan may directly pay the creditor. 

Like personal loans, credit card consolidation loans move your debt to one monthly payment, which can simply affect your finances. These loans also typically have lower rates than credit cards and are fixed, which means they won’t change throughout the loan.

These types of loans work best when you have a smaller amount of debt and can qualify for the loan. If you’re in a tight spot and your credit is suffering, it might be hard to get an unsecured loan. 

4. Home equity loans or lines of credit 

If you own a home and have sufficient equity, you may be able to use a home equity loan or home equity line of credit (HELOC) to consolidate your credit card debt. These options often offer lower interest rates than credit cards or personal loans, as they are secured by your home.

To use this strategy, determine your available home equity (your home's value minus your mortgage balance) and apply for a home equity loan or HELOC with a lower interest rate than your credit cards. Once approved, use the funds to pay off your credit card balances and make monthly payments on the home equity loan or HELOC until it's paid off.

It's crucial to remember that using your home as collateral means risking foreclosure if you can't make payments. Additionally, closing costs and fees can add up, and longer repayment terms may result in paying more interest over time.

5. Debt management plans

Debt management plans (DMPs) are another option for consolidating credit card debt, particularly if you're struggling to qualify for balance transfer cards or loans on your own. These plans are offered by non-profit credit counseling agencies and involve working with a credit counselor to create a budget and repayment plan.

To use this strategy, you'll work with a credit counselor to assess your finances and debts. The credit counseling agency will negotiate with creditors to reduce interest rates and fees. You'll make a single monthly payment to the credit counseling agency, which will distribute the funds to your creditors. DMPs typically take 3-5 years to complete.

“This may be a better option if you have the resources to pay off your debt over time, especially if the repayment terms are adjusted (lower interest rate, longer timeline, etc.),” says Tayne. “Being on a DMP may be noted on your credit report, but it generally has a less severe impact than debt settlement.”

When choosing a credit counseling agency, look for a non-profit organization accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). Check for complaints with the Better Business Bureau and your state's Attorney General office, and ask about fees, services, and counselor qualifications.

Remember that participating in a DMP may require closing credit accounts, and your credit report will note your participation in the program, which may impact future borrowing.

Alternatives to debt consolidation 

While debt consolidation can effectively manage credit card debt, it's not the only option. 

Debt settlement

Debt settlement involves negotiating with creditors to pay off your debts for less than you owe. 

“Negotiating a debt settlement is one of the best ways to save money and quickly get out from under the burden of debt since you often pay a fraction of what you owe.” says Tayne. 

While this can save you money, it can also significantly negatively impact your credit score and may result in tax implications on forgiven debt. 

Bankruptcy

Bankruptcy is another alternative, but it should be considered a last resort. Chapter 7 bankruptcy eliminates most unsecured debts, while Chapter 13 bankruptcy sets up a repayment plan. However, bankruptcy has serious consequences, including significant damage to your credit score. 

The bottom line

Consolidating your credit card debt is only the first step. To avoid falling back into debt, it's essential to create a budget and stick to it, build an emergency fund to cover unexpected expenses, pay off credit card balances in full each month, and avoid taking on new debt unless necessary.

Budgeting helps you track income and expenses, identifying areas for improvement. An emergency fund, typically 3-6 months of expenses, prevents reliance on credit cards for unexpected costs. Regularly reviewing and adjusting your budget ensures it meets your needs and goals.

Frequently asked questions 

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.