How to Consolidate Credit Card Debt

If you’re juggling multiple credit card payments every month and feel like you can’t get ahead, consolidating your credit card debt is a good way to organize your finances, save money on interest, and give yourself a little financial breathing room. 

In this article, we’ll explain how to consolidate credit card debt and how much money in interest it can save you. We’ll also share five different consolidation options and who would benefit most from each one. By the end, you’ll know the steps to take to consolidate your credit card debt and which strategy is best for you.

Table of Contents

1. What is debt consolidation for credit cards?
   1. Steps to consolidate credit card debt
2. Which debt consolidation option is best?
   1. 1. Personal loan
   2. 2. Balance transfer credit card
   3. 3. Tap into home equity
   4. 4. Debt management plan
   5. 5. Debt settlement
3. How much money can you save with debt consolidation?
   1. Debt consolidation example
4. FAQs

What is debt consolidation for credit cards?

According to the Consumer Financial Protection Bureau (CFPB), debt consolidation is when you take several debts and roll them into one, typically at a lower interest rate. When I graduated from college, I consolidated my student loans, which allowed me to combine four different federal student loans with varying payments and due dates into a single payment.

As a young person navigating my first job out of college and paying my own bills for the first time, debt consolidation helped me gain more control of my cash flow and finances. You can also use this strategy for credit card debt. There is currently $1.21 trillion in outstanding credit card debt in America, which means millions of people have credit card debt they want to pay off.

There are several ways to consolidate credit card debt, including taking out a personal loan, transferring your balance to a 0% credit card, or working with a debt settlement company. The strategy that’s best for you will depend on the amount of debt you have, your credit score, whether or not you’re behind on your bills, and your comfort level with negotiating with lenders.

Steps to consolidate credit card debt

Here is how credit card debt consolidation works:

• Step 1: Choose a debt consolidation option from the list below.
• Step 2: Compare lenders (You can use a marketplace like Credible.)
• Step 3: Select a lender and complete the application.
• Step 4: Once approved, your lender will disburse the loan funds.
• Step 5: Use the loan disbursement to pay off your credit card debt.
• Step 6: Take steps to prevent going back into high-interest debt.

The final step (#6) is the most important one on this list because it’s tempting to go back into credit card debt once your cards are empty again. My recommendation is to build a one-month starter emergency fund before consolidating your debt. That way, if you need an expensive car repair or have to bring your child to the emergency room, you won’t risk repeating a debt cycle.

Which debt consolidation option is best?

Here are five debt consolidation options to consider if you have credit card debt.

Option	Credit needed	Best for
Personal loan	Good	Equal monthly payments
Credit card	Good	Paying off debt quickly
Home equity	Good	Homeowners with equity
Debt management plan	Bad	Negotiating debt
Debt settlement	Bad	Settling delinquent debt

1. Personal loan

You can use a personal loan for anything, including consolidating credit card debt. The benefit is that personal loans typically have fixed interest rates, set monthly payments, and require no collateral. The downside is that personal loan interest rates can be higher than other options on this list (like a home equity loan) because there’s no collateral. 

View our list of the best debt consolidation loans to find a lender, and make sure you understand whether or not the lender you choose charges orgination fees.

2. Balance transfer credit card

If you have good credit, another option is to apply for a 0% balance transfer credit card. With this option, you can transfer your credit card balance to a different card that offers a promotional interest rate for a specified period. The Citi Simplicity® Card offers one of the longest promotional periods, at 21 months with 0% interest on balance transfers. 

The benefit of this strategy is that you can pay down your principal balance quickly with 0% interest. The drawback is that there is usually a fee to transfer your balance, and if you don’t pay off the card before the promotion runs out, you can get stuck with high-interest debt again.

3. Tap into home equity

If you’re a homeowner with equity in your house, consider using one of our recommended lenders and apply for a home equity loan or a home equity line of credit (HELOC).

The benefit of using one of these products to pay off your credit card debt is that home equity loans and HELOCs typically have lower interest rates than other options on this list because your home is the collateral for the loan. The drawback is that if you’re unable to make your payments, your lender could foreclose on your house, so there is risk involved.

4. Debt management plan

Nonprofit companies, like the National Foundation for Credit Counseling, are institutions that help consumers pay off credit card debt. Borrowers who qualify work with a debt counselor to create a debt management plan (DMP). 

As part of this plan, borrowers close their credit card accounts and pay a monthly sum to the debt management company, which negotiates with lenders on the borrower’s behalf. The downside to a DMP is that closing credit card accounts can negatively affect your credit, but the benefit is that consumers get a set monthly payment and the support of a debt counselor.

5. Debt settlement

If you are several months behind on payments, you can work with a debt settlement company like National Debt Relief to settle your credit card debt for less than you owe. The benefit is that a debt settlement company negotiates on your behalf, and settling your debt can help you avoid bankruptcy. 

The drawback is that because you can’t make payments while the company negotiates your debt, it can seriously harm your credit score.

How much money can you save with debt consolidation?

You can save thousands of dollars in interest by consolidating your credit card debt.

Debt consolidation example

Let’s look at what happens if you carry $12,000 in credit card debt at a 22% interest rate.

• Monthly minimum payment: about $300 (2.5% of your balance)
• Total interest paid: just under $10,000 if you only make the minimums
• Time to pay off: more than six years

Now, compare that with consolidating into a five-year personal loan at 9% interest:

• Monthly payment: about $250
• Total interest paid: just under $3,000
• Time to pay off: exactly five years

The bottom line: By consolidating, you’d pay off your debt a year sooner, reduce your payments by $50 per month, and save around $7,000 in interest overall.

FAQs

How do you consolidate credit card debt without hurting your credit?

The key is to choose an option that lowers your interest rate and helps you pay off debt faster. Applying for a loan or balance transfer card will cause a small dip in your score at first because of the credit inquiry. However, as you make on-time payments and lower your credit utilization, your score can actually improve over time.

How do you consolidate credit card debt with bad credit?

It’s harder to qualify with poor credit, but you still have options. You might use a secured personal loan, a home equity loan if you own a home, or a debt management plan through a nonprofit credit counselor. These choices often come with higher interest rates, but they can still simplify repayment and help you get back on track.

The best debt consolidation loans for bad credit typically have lower credit score requirements, flexible repayment terms, and reporting to the credit bureaus to help rebuild your credit.

How can you consolidate debt on your own?

If you don’t want to take out a new loan, there are several ways to handle consolidation yourself:

• Avalanche method: Focus extra payments on the highest-interest debt first while paying minimums on the rest. This saves the most money in interest.
• Snowball method: Pay off the smallest balances first for quick wins and motivation, then roll those payments into larger debts.
• Home equity loan or HELOC: If you own a home, you may be able to borrow against your equity at a lower interest rate, but your home is used as collateral.
• Borrowing from friends or family: Can be interest-free or low-cost if structured fairly, but it’s important to set clear terms to avoid tension.

Is it worth it to consolidate credit card debt?

It can be worth it if consolidation lowers your interest rate, shortens your payoff time, or makes payments more manageable. But if fees are high, or you continue to rack up new credit card debt, you may end up worse off.

Will I lose my credit cards if I consolidate my debt?

Not necessarily. If you take out a personal loan, your cards stay open (unless you close them yourself). However, with a debt management plan, some creditors may require you to close your cards to stick to the repayment plan.

Is debt consolidation a good idea?

It depends on your situation. Consolidation makes the most sense if:

• You have high-interest debt that you can refinance at a lower rate
• The fees are reasonable compared to the savings
• You’re committed to not adding new debt while paying off the loan