7 Ways To Consolidate Credit Card Debt (2024)

Credit cards can be powerful tools—from learning how to manage finances to funding a business venture or earning cash back or travel rewards toward an aspirational vacation. They can provide cash if a life emergency hits and even help build your credit profile, laying the foundation for larger credit purchases like a home loan or a car.

Still, even for those with the best-laid plans, sometimes life tosses you a curveball, and you may find yourself stuck with multiple credit cards with varying balances. Planning and executing a strategy to pay down these debts can feel daunting. Consolidating credit card debt can be a smart method to help you dig out of debt and get back on the road to financial wellness.

What Is Credit Card Consolidation?

Credit card consolidation is a strategy in which multiple credit card balances combine into one balance. This makes tracking easier because there is just one monthly payment and due date. Consolidation strategies often come with a lower APR that will save on total interest paid, allowing you to pay off the balance quicker.

What Is a Credit Card Debt Consolidation Loan?

Credit card consolidation loans occur when a new loan is taken to pay down your debts. For simplicity, let’s say you have three credit cards with balances of $1,000 each. A consolidation loan would be taking out a loan for $3,000, paying off your three $1,000 balance credit cards, and now just having a singular loan for $3,000.

How Does Credit Card Consolidation Work?

The credit card consolidation process is generally straightforward. Working with a loan officer, credit counselor or on your own, gather all the debts you want to combine into one payment. From there, a plan or loan is set in place for you to make your monthly payment to one location, making it easier to remember your due date, along with hopefully having a lower APR to pay.

With this in mind, let’s cover consolidation strategies that may be accessible to you. This is not a complete list, but it may offer some ideas you may not have considered.

How To Consolidate Credit Card Debt

You can consolidate credit card debt using several methods, but among the most popular are personal loans, debt consolidation programs, and perhaps the easiest and often cheapest, 0% introductory APR offers from balance transfer credit cards.

Personal Loans

One of the most common ways to consolidate your credit card debts is to contact your bank or credit union and request a personal loan. The application processes can often be completed over the phone or online. What’s notable about these loans is they often have flexible terms (typically 12 to 60 months) and establish a consistent month-to-month payment, which assists in budgeting. As a bonus, some financial institutions will pay your creditors directly, saving you the hassle.

Be aware that your interest rate is likely determined by the term of the loan and your credit score. Loans may also be subject to origination fees, which add to the overall cost of the loan.

Often, the four big metrics used in lending are income, credit score, total assets and total debts. Some underwriters, like online lender Upstart, add a few nontraditional metrics to their loan approval process.

During the underwriting process, metrics such as educational level, length at current residence, and even job history can lead to an approval where a bank may not have. This is especially useful for newer borrowers who may not have a robust credit profile established.

There are a few drawbacks, such as the potential for origination fees and fewer loan terms to choose from. Rates are comparable for those with a good credit score but could be much higher if your credit score is unfavorable.

Debt Consolidation Programs

A debt consolidation program is usually a service for borrowers where your credit cards are combined into a single payment. From there, you usually make a single payment to the program which would then forward the payment to your creditors. Do not confuse this with a debt consolidation loan, which is granted to pay off your existing debts. Your existing debts are still there but may be more manageable.

Ideally, your program’s monthly payment is less per month than making all your payments individually. That also means that more of the payment goes toward paying down your debts. Debt consolidation programs work with your creditors to help reduce interest rates on debts and eliminate varying fees such as late fees, though neither is promised. Some debt consolidation programs may require the closure of some or all of the cards you’re consolidating, so double-check if your goal is to keep your cards.

If you’re looking for help overcoming debt repayment challenges impacting your credit, nonprofit credit counseling organizations, like the National Foundation for Credit Counseling (NFCC), can pull your report and score at no cost and review the results with you. While all of these programs’ ultimate goal is to create a payment plan that works for you, some carry setup or monthly fees. This should be factored into your decision of which company you go with.

0% APR Balance Transfer Offers on Credit Cards

Many credit cards offer an introductory offer of 0% APR on balance transfers for a limited time after opening the card. While they may still be subject to balance transfer fees (typically 3% to 5% of the balance being consolidated), they often offer 0% introductory periods between 12 and 18 months to avoid worrying about the balance accruing any additional interest.

For example, the Citi® Diamond Preferred® Card is an excellent option for those considering this route. It comes with a $0 annual fee and a respectable 0% intro APR for 21 months on eligible balance transfers from date of first transfer and 0% intro APR for 12 months on purchases from date of account opening. After that, the variable APR will be 18.24% - 28.99%. Balance transfers must be completed within 4 months of account opening. A balance transfer fee of either $5 or 5% of the amount of each transfer, whichever is greater, applies.

The downsides to balance transfer credit cards are the credit limit given and being limited to only the intro period before interest accrues. For some people, spreading payments over a longer period may be more beneficial, even if it requires paying some interest. You should have good to excellent credit if you’re considering applying for a credit card that offers a 0% introductory period.

Second Mortgage or HELOC

If your home has appreciated in value over time or the balance has been paid down a fair amount, using your home could be a way to consolidate your debts. Taking out a second mortgage or using a home equity line of credit (HELOC) effectively uses your home as collateral to pay off other debts.

Since there is an underlying asset for these loans, the rate is often lower than what you would get with a personal loan, making the monthly payments smaller or avoiding higher interest rates with other methods. The lower interest rate may allow you to pay down the balance more quickly. There could be additional mortgage-related expenses when taking this route, so a direct inquiry to your lender is a must. There may be tax implications as well.

401(k) Loan

We typically do not recommend taking money from retirement savings in all but the most urgent circumstances. Ideally, a 401(k) loan would not be your first choice for debt consolidation—that said, it does offer a few advantages.

Taking out a loan against your employer-sponsored 401(k) is a way of getting a lower rate than a personal loan, and generally, this strategy can help your overall credit profile. Taking out a loan from your 401(k) doesn’t require a credit check, so it shouldn’t affect your credit score or require credit of any specific level. Meanwhile, the debts you pay off with the loan may help improve your credit rating.

Just understand that leveraging your 401(k) reduces your retirement fund and hefty fees may be assessed if you cannot repay the loan. The payback time may also be accelerated if you lose or change jobs.

Peer-to-Peer Lending

Peer-to-peer lending is another way to access funds for a consolidation loan. The idea is to create a “win-win” situation, bringing together those seeking loans with those willing to invest. The borrowing to consolidate debts into one easy monthly payment and an investor who seeks a steady and worthwhile return on investment.

Equity in Owned Vehicles

If you have a vehicle that is paid off or has a low balance compared to what it is worth, this could be an interesting route. Taking a loan out using your vehicle as collateral, would allow you to pay down your other creditors. In this situation, you can receive an auto loan rate typically much lower than an unsecured personal loan.

The downside would be a limitation of the loan being capped at the vehicle’s value. Also, when carrying an auto loan, most states require full auto insurance coverage on the vehicle, which could increase the monthly expenses with personal liability and property damage (PLPD) insurance. However, this is a way to leverage an asset to obtain a lower loan rate.

Is Credit Card Debt Consolidation a Good Idea?

The goal of credit card debt consolidation usually is to roll your high-interest credit card debts into one easy payment with a lower interest rate. If anything else, it provides a clear path to getting debt-free as the terms tend to have a fixed paydown period. This more structured feel may be what you need to be on your way to being debt-free, even if there are some setup or origination fees.

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

Credit card refinancing is transferring the balance of a credit card onto a lower-interest-rate credit card. In other words, credit card refinancing is another way of saying balance transfers. There are a few things to consider when choosing one over another.

Credit card refinancing works best when you’re dealing with lower overall balances. This is because when you refinance, you usually get a promotional lower APR for a shorter period (usually 12 to 18 months).

After this period, the APR may be similar to what you paid before refinancing. What is nice is you’ll only be responsible for the minimum payment each month, which would likely be smaller than a consolidation loan. It would be a good idea to aim to pay off the balance during the promotional period, which makes this a more short-term solution.

A consolidation loan comes with a fixed rate, consistent month-to-month payment and a defined maturity date. While there may be an origination fee, all guesswork is taken out as everything is determined when the loan is taken out. The rate would likely be higher than a promotional rate from a credit card, but if the balance is being carried beyond this time, the consolidation loan rate would likely be less than the average APR from the credit card.

Bottom Line

Credit cards and their associated rewards programs can be amazing for earning and saving up for that next vacation or just putting a little extra back into your pocket. However, getting over your head in credit card debt can be exhausting and quickly negate the value of all the points, miles and cash back you’ve earned. Exploring options to eliminate this debt quickly can go a long way to gain financial freedom and get you back to leveraging your credit cards effectively.

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