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Consolidating your credit card debt can help you organize everything into a single monthly payment and save money with a lower overall interest rate. Two popular strategies include using balance transfer credit cards and debt consolidation loans.
What is credit card debt consolidation?
Debt consolidation is combining all your existing debt in one place. You can consolidate credit card debt with a balance transfer credit card or loan from a bank or another financial institution.
Related: Best ways to pay off credit card debt
Is credit card debt consolidation right for me?
Credit card debt consolidation is right for you if it helps pay off your debt. The point of debt consolidation is to lower your interest charges and organize your debt in one place so it’s easier to track. If available debt consolidation strategies can’t lower your overall interest rate, consider other debt-payoff strategies, including budgeting.
Pros
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It can organize your debt into one monthly payment
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It can save you money with a lower interest rate
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It can help you get out of debt quicker
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It can improve your credit score with on-time payments
Cons
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It can temporarily impact your credit score if you apply for new credit accounts or have a high credit utilization
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It might not help you get out of debt
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You might not qualify for the best offers
Credit card debt consolidation options
1. Balance transfer credit card
You can transfer existing debt from multiple sources to a balance transfer card and then manage your debt in one convenient location. This typically only makes sense if the card you’re transferring debt to is a 0% APR credit card.
A credit card with a 0% introductory APR (annual percentage rate) offer on balance transfers lets you avoid paying any interest on transferred balances for a certain amount of time. You still have to pay a balance transfer fee on most cards, but it could be worth paying if you save more money on interest.
Consider the difference between paying off credit card debt with and without using a balance transfer card with a 0% intro APR offer.
| No 0% APR offer and minimum payment | 0% APR offer and minimum payment | 0% APR offer and minimum payment | |
| Debt | $10,000 | $10,000 | $10,000 |
| Interest rate | 20% | 0% intro APR for 12 months | 0% intro APR for 12 months |
| Balance transfer fee (5%) | N/A | $500 | $500 |
| Monthly payment | $265 | $267 | $850 |
| Time to pay | 59 months | 49 months | 12 months |
| Interest paid | $5,893 | $3,029 | $0 |
| Total paid | $15,893 | $13,529 | $10,500 |
The examples above show how a balance transfer offer could save you money, even if you don’t fully pay off your balance during the 0% intro APR period. However, we recommend paying as much of your debt off as possible during the promotional period, as that will save you the most money on interest.
Recommended balance transfer credit cards
Chase Freedom Unlimited®
Capital One Savor Cash Rewards Credit Card
Blue Cash Preferred® Card from American Express
Check out our reviews of each card:
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Chase Freedom Unlimited: How to get an extra $300 back in your first year
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Capital One Savor Cash Rewards review: Unlimited cash back for no annual fee
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Amex Blue Cash Preferred Card review: Big grocery rewards and more everyday savings
2. Credit card debt consolidation loan
A credit card debt consolidation loan can be used to pay off your existing debt so you have one monthly payment and a lower rate. Consider the following debt situation where you could use a debt consolidation loan:
| Credit card 1 | Credit card 2 | Credit card 3 | |
| Balance | $20,000 | $10,000 | $5,000 |
| Interest rate | 20% | 18% | 25% |
| Average interest rate | 21% | ||
| Total balance | $35,000 | ||
If you qualify for a sufficient loan amount and favorable loan terms, you could save on interest as you work to pay off your debt. Even better, you would only have one payment to worry about rather than three.
Debt consolidation loan requirements could include the following:
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A valid Social Security number
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Be at least 18 years old
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A physical address
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A minimum income that’s determined by the lender (bank, credit union, or other financial institution)
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A good credit history and/or credit score (it’s common for lenders to issue credit checks, which can temporarily impact your credit score and show up on your credit report)
3. Personal loan
Personal loans can be used the same way as debt consolidation loans to organize your debt and save money on interest. Depending on the financial institution, a personal loan could be labeled as a “debt consolidation loan.” That means they’re the same thing and often have the same requirements.
4. Home equity loan or line of credit
A home equity loan or home equity line of credit (HELOC) lets you borrow money against your home’s equity.
With a home equity loan, you receive a lump sum of money that you have to pay back with interest, typically at a fixed rate, over a certain number of years. A HELOC lets you borrow money from an open line of credit, and you pay interest on the amount borrowed. You can use either option to pay off credit card debt from multiple sources.
The strategy with using these options is to make sure the amount you pay in interest is lower than what you’re currently paying on your credit card debt.
Home equity loan and HELOC requirements could include:
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Home equity
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A favorable debt-to-income ratio
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A positive credit history
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Sufficient income
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Paying closing costs
Read more: HELOC vs. home equity loan — Tapping your equity when rates are high
5. 401(k) loan
A 401(k) loan lets you borrow money against your retirement savings. You have to pay the loan back with interest within a certain amount of time, and you could be on the hook for paying taxes and incur a penalty if you default on the loan (can’t pay it back).
We don’t generally recommend taking out a loan against your 401(k) without careful consideration because it could derail your retirement savings plan. You would have to thoroughly review the situation to see if paying off debt with the money you’ll likely need when you retire makes sense.
6. Debt management plan
Credit counseling organizations can offer debt management or debt repayment plans where you pay the organization and they make payments to your creditors. This could be a useful debt consolidation option for paying off different types of debt.
That would only be the case if the organization negotiates with your creditors to lower your interest charges or balances due or negotiates other favorable terms of debt relief.
Things to be aware of with credit counseling organizations:
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You might have to pay a fee for these types of services. Be sure to review the plan's terms and conditions, including repayment terms.
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Not all organizations are reputable, and scams do exist within this industry. The U.S. Department of Justice has a list of approved credit counseling agencies you can browse.
Alternative debt-payoff strategies
Debt consolidation isn’t the only way to take control of your debt and eventually become debt-free. As you consider your financial situation and options, keep these popular budgeting strategies in mind.
Debt avalanche
The debt avalanche method focuses on paying off the debt with the highest interest rate first. As you pay off one debt, you move to the debt with the next highest interest rate. The point of this strategy is to save money by paying off the high-interest debt first and as fast as possible.
| Credit card 1 | Credit card 2 | Credit card 3 | |
| Balance | $10,000 | $5,000 | $3,000 |
| Interest rate | 18% | 25% | 20% |
Using the debt avalanche method in this example, you would put your payments toward the balance on credit card 2 first, then credit card 3, and then credit card 1.
Debt snowball
The debt snowball method is similar to the avalanche method but focuses on paying off the smallest amount of debt first rather than the debts with the highest interest. This strategy aims to build momentum as you move from paying off one balance to another. It might not save as much money as the avalanche method, but it can help keep you motivated.
| Credit card 1 | Credit card 2 | Credit card 3 | |
| Balance | $10,000 | $5,000 | $3,000 |
| Interest rate | 18% | 25% | 20% |
Using the debt snowball method in the same example, you would put your payments toward the balance on credit card 3 first, then credit card 2, and then credit card 1.
Related: What’s more important — Saving money or paying off debt?
FAQs about consolidating credit card debt
Does credit card consolidation hurt your credit score?
Debt consolidation can hurt your credit score if you apply for a new balance transfer card or debt consolidation loan. Your score could also go down from high credit utilization on a balance transfer card, as well as a new credit account lowering the average age of your accounts.
However, these effects are typically temporary, especially if you make on-time payments as you work to pay off your debt.
Is it worth it to consolidate credit card debt?
Debt consolidation can be worth it if it helps you pay off your credit card debt. The purpose of debt consolidation is to organize all your debt in one place at a lower interest rate than what you were collectively paying before. It’s likely worth it if you can do this with a balance transfer card or loan, owing less money overall and making it easier to track payments.
Why should you consolidate credit card debt?
Consolidating credit card debt has two purposes: it lowers your overall interest rate on all your debt and organizes it in one place. This makes tracking your payments easier and lowers the interest you pay throughout the debt-payoff process.
How do I qualify for a debt consolidation loan?
It depends on the financial institution and their requirements, but you typically need to provide personal and financial information, often including your Social Security number and income. Your credit history and debt can also factor into the qualification process, so having a good credit score is typically beneficial.
What are the best methods to consolidate credit card debt?
Some of the best methods to consolidate credit card debt include using balance transfer credit cards and loans. With either of these options, you can consolidate your debt in one place, making it easier to track. However, debt consolidation typically only saves you money if it also lowers your overall interest rate.
This article was edited by Rebecca McCracken
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