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5 Ways to Consolidate Credit Card Debt


If you're burned out from juggling multiple credit card bills every month and you're looking for a way to pay off credit card debt, you might be relieved to know it's possible to combine debt from multiple credit cards into one monthly payment.

There are five common ways to consolidate credit card debt. While each method has its benefits, they can vary in cost and effectiveness depending on your personal situation.

1. Credit Card Balance Transfer

One way to consolidate credit card debt is to move all your debt onto one credit card. This is known as a credit card balance transfer. If you already have a card with an excellent interest rate/APR, you could move all your debt to that card. Some credit cards even have offers where cardholders can transfer balances to that card to receive rewards points or a promotional interest rate on the transferred balance.

Often the best way to save money is to try and qualify for a new credit card with a 0% introductory rate. During your introductory period, which varies depending on the card, your debt will not accrue interest. This means every payment you make will go toward the principle of your debt, reducing the total amount you owe.

Keep in mind that introductory interest rates only last for a certain amount of time before a credit card's real interest rate kicks in. You'll need to pay down the transferred balance as much as possible, as soon as possible to really reap the benefits of a balance transfer.

Additionally, many cards charge a one-time balance transfer fee of 3-5% of the total amount transferred (which would equate to around $30 to $50 per $1,000 transferred).

2. Use a Personal Loan

A personal loan for debt consolidation is another way to tackle credit card debt. Personal loans are a type of installment loan, which means you borrow a specific amount of money and agree to pay it back with interest in a set number of payments (known as installments). If you're trying to pay off your credit card debt, a personal loan offers a structured way for you to do this.

One advantage of personal loans is that unlike home equity loans, they don't require collateral. However, their interest rates are often higher than secured loans.

Personal loans usually have a fixed interest rate, so the amount you will pay per month will be the same throughout the life of the loan. However, some personal loans do come with variable rates that can change. Either way, the longer you take to repay your personal loan, the more total interest you will pay.

When evaluating borrowers, lenders consider factors such as the borrower's credit score, verifiable income, and debt-to-income ratio. If you don't have much credit history or you have poor credit, you still may qualify for a personal loan by using a cosigner.

Pros Cons
Doesn't require collateral Interest rates are higher
Fixed interest rate (usually) Must qualify

3. Use Your Home Equity

One popular way to consolidate credit card debt is to borrow against the equity in your home. You can do this by taking out a home equity loan or by establishing a home equity line of credit, otherwise known as a HELOC.

Home Equity Loan

A home equity loan allows you to use your home as collateral to borrow a lump sum of money. Because of this collateral, home equity loans usually offer lower interest rates than credit cards. Even better, the interest rate is fixed for the life of the loan.

If you're considering a home equity loan, there are a few things to keep in mind. First, even though a home equity loan may enable you to consolidate your credit card debt, it is still a form of debt. You will still need to make regular payments, and your loan will still accrue interest. You may also be responsible for closing fees on a home equity loan.

Pros Cons
Lower interest rates May require closing fees
Fixed interest rate Your home serves as collateral


Another way you can use your home equity to consolidate your credit card debt is through a home equity line of credit, or a HELOC. Like a home equity loan, a HELOC uses your home as collateral to borrow money. But instead of borrowing a set amount, you are establishing a line of credit. Your lender will set a credit limit and you can borrow up to that amount as needed during a set term (usually 10 years).

The interest rate on a HELOC is usually variable. Throughout the time you borrow from it, you will be required to make payments on the interest you accrue. Once your borrowing period ends, you will be required to make regular monthly payments on the principle and interest if you have a balance.

Pros Cons
Establishes a new line of credit Variable interest rate
Can borrow as needed within a period of time Must maintain interest payments throughout your period of borrowing
  Must repay principle and interest once period of borrowing ends

4. Set Up a Debt Management Plan

By working with a debt management company or credit counseling agency, you can create a debt management plan. The goal of these plans is to help you pay off your credit card debt in three to five years.

The company or agency you work with will negotiate lower interest rates with your creditors, making it easier for you to pay on the principle of your debt. Then, instead of paying your creditors, you will make a single payment to your debt management company or credit counseling agency. Your agency will use that payment to pay your creditors.

You don't need great credit to qualify for a debt management plan, so it's a good option for borrowers with poor or little credit. However, participation in a debt management plan may temporarily impact your credit score. You may also have to pay set-up or maintenance fees, and some agencies offer better terms than others.

Pros Cons
Pay off debt sooner May temporarily impact your credit score
Lower your interest rates May include set-up or maintenance fees
Don't need great credit Some agencies offer better terms than others

5. Retirement Account Loan

Some employer-sponsored retirement accounts, like 401(k)s, allow you to borrow against them. These loans often have competitive interest rates that are lower than what banks or lenders offer. Retirement account loans also don't require a credit check and don't affect your credit score.

However, you won't earn interest on money you've taken out of your retirement account, which will slow your account's growth. And if you don't make timely payments, you may be taxed on the amount you have borrowed. Retirement account loans are also sometimes subject to penalties.

Pros Cons
Competitive interest rates Miss out on earning interest
Doesn't require a credit check Money may be taxed
Doesn't affect your credit score May incur financial penalties

The Takeaway

There are many ways to consolidate credit debt, but the best way for you will depend on you. Consider the total amount of credit card debt you carry, the interest rates on your credit cards, types of collateral you have available, and your credit score. Then do your research to find the consolidation strategy that helps you reach your financial goals.

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