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Five Ways to Consolidate Credit Card Debt

Credit card debt consolidation is a strategy that takes many credit card balances and combines them into one easy-to-manage monthly payment.

Consolidating credit card debt can be a good option if the new debt has a lower APR than your current credit card rates.

By consolidating their debt, consumers can get a lower interest rate, make payments more manageable, or shorten repayments.

How to consolidate depends on your credit score and how much debt you owe, as well as other factors.

Here are five ways to effectively pay off credit card debt:

Consolidate alongside a personal loan

Consolidating alongside a personal loan has advantages and disadvantages to consider.


  • Low APRs for people with excellent credit.
  • Some lenders offer direct payment to creditors.
  • A fixed interest rate means monthly payments won’t change.

The inconvenients:

  • Some loans may incur origination fees.
  • If you have bad credit, it can be difficult to get a low rate.
  • Some credit unions require application membership.

An unsecured personal loan from a bank, credit union, or online lender can be used to consolidate credit card or other debt. The loan will give you a lower APR on your debt in perfect situations.

Credit unions are non-profit lenders. They can offer their members lower and more flexible rates than online lenders, especially for borrowers with bad or fair credit. The maximum APR charged by federal credit unions is 18%.

Bank loans offer competitive APRs for borrowers with good credit, and benefits for existing bank customers can include rate discounts and larger loan amounts.

Most online lenders allow borrowers to pre-qualify for a credit card consolidation loan without affecting their credit score. This feature is less common among credit unions and banks.

Borrowers should look for lenders who offer special features for debt consolidation. Some lenders specialize in consolidating credit card debt, while others will send loan funds directly to your creditors, simplifying the process for consumers.

Take out a 401(k) loan


  • No impact on credit rating.
  • Offer lower interest rates than unsecured loans.

The inconvenients:

  • High fees and penalties if you cannot repay.
  • Reduces your retirement fund.
  • If you quit or lose your job, you may need to repay your loan quickly.

It is not advisable to take out a loan from an employer-sponsored retirement account, such as a 401(k) plan. This can have a significant impact on your retirement.

Taking out a loan on a 401(k) should only be considered if you have ruled out other types of loans, including balance transfer cards.

One advantage of this type of loan is that it will not show up on credit reports. There is no impact on your score.

However, the downsides are significant. If you can’t repay the loan, you’ll have to pay taxes on the outstanding balance, a healthy penalty, and you could end up with even more debt.

Typical 401(k) loans are due in five years, unless you quit or lose your job. If this happens, they are due on the following year’s tax day.

Get a balance transfer card


  • Usually 0% APR introductory period for borrowers.

The inconvenients:

  • May incur balance transfer fees.
  • A higher APR takes effect after the introductory period.
  • Requires good to excellent credit to qualify.

The credit card refinance option transfers credit card debt to a balance transfer credit card.

Generally, balance transfer cards offer no interest charges for a promotional period, often 12 to 18 months. To be eligible, borrowers must have excellent credit (FICO score of 690 or higher) to be eligible for most balance transfer cards.

Good balance transfer cards will not charge an annual fee. Many card issuers charge a one-time balance transfer fee ranging from 3-5% of the transferred amount. Before deciding which card to choose, borrowers should calculate whether the interest saved will wipe out the cost of fees over time.

Borrowers should aim to pay off the balance before the end of the introductory 0% APR period. Any remaining balance will have a regular credit card interest rate after the end of the period.

Use a line of credit or home equity loan


  • May not require good credit to qualify for a line of credit.
  • Lower interest rates than personal loans.
  • A long repayment period helps reduce payments.

The inconvenients:

  • Secure with your home; you can lose it if you default.
  • You must have equity in your home to qualify. A home appraisal is usually required.

Homeowners may be able to take out a line of credit or a loan against the equity in your home, using it to pay off credit cards or other debts.

A home loan is a lump sum loan with a fixed interest rate. A line of credit has a variable interest rate and works like a credit card.

A home equity line of credit often requires interest-only payments for the first ten years or the drawdown period. This means that you will have to pay more than the minimum payment required to reduce your overall debt and reduce principal during this period.

Since your home guarantees loans, you’re more likely to get a lower rate than you’d get with a balance transfer credit card or personal loan. However, you can lose your home if you don’t meet the payments.

Debt management plans


  • Doesn’t hurt your credit score.
  • Fixed monthly payments.
  • Can cut your interest rates in half.

The inconvenients:

  • It can take years, three to five years, to pay off your debt.
  • Monthly fees and startup fees are standard.

Debt management plans can consolidate multiple debts into one monthly payment at a reduced interest rate. The programs work best for people who don’t qualify for other options because of a low credit score or difficulty paying off credit card debt.

Unlike other credit card options, debt management plans don’t affect your credit score. If your debt is too high, over 40% of your income, and cannot be repaid within five years, bankruptcy may be an option to consider.