Consolidating credit card debt can be an effective way to simplify payments, reduce interest rates, and pay off debt faster. This comprehensive guide covers everything you need to know about credit card consolidation.
What is Credit Card Consolidation?
Consolidating credit card debt involves combining multiple credit card balances into one new loan. This is typically done by taking out a personal loan or balance transfer credit card with a lower interest rate to pay off the high-interest credit cards.
The benefits of consolidating credit card debt include:
- Simpler payments – Make only one payment instead of multiple credit card payments
- Lower interest rate – Personal loans and balance transfer cards usually have lower rates than credit cards
- Pay off debt faster – More of your payment goes to principal instead of interest
- Fixed payoff time – Personal loans have a set repayment term so you know when the debt will be paid off
Should You Consolidate Your Credit Card Debt?
Consolidating credit card debt can be a smart financial move but it’s not right for everyone. Consider whether it makes sense for your situation.
Pros of Consolidating Credit Card Debt
- Lower interest rate – This is the biggest benefit. Reduce high credit card interest rates of 15-25% down to a personal loan or balance transfer card rate of 5-15%. This saves money over time.
- Single payment – Hassle-free with just one payment per month versus multiple credit card payments. Easier to budget.
- Pay off debt faster – More of your payment goes to pay down principal each month rather than interest. Shorter path to becoming debt-free.
- Fixed payoff date – With a personal loan, the monthly payment and term length are fixed. You know exactly when the debt will be repaid.
- Simplified finances – Consolidating combines everything into one new loan so it’s easier to manage.
Cons of Consolidating Credit Card Debt
- Fees – Balance transfer cards often charge a 3-5% fee. Personal loans sometimes have origination fees.
- Credit score drop – Applying for a new loan or card causes a short-term drop in your credit scores. Too many applications hurt your score.
- Debt remains – Consolidation helps manage and repay debt but doesn’t erase it. You still owe money.
- Missed savings – By stretching out debt, you miss potential savings from aggressively paying down credit cards.
- Risk of running up cards again – Easily falling back into bad habits can lead to getting into debt again. Needs discipline.
When Consolidating Debt Works Best
You’ll benefit the most from consolidating credit card debt if:
- You can qualify for a much lower interest rate than your current cards
- You have good credit (670+ credit score)
- You have a steady income to repay the debt
- You are motivated and can avoid running up credit cards again
- You need simplicity of one payment vs multiple cards
- You have high-interest credit card debt of $5,000+
People with bad credit, variable income, or tendency to overspend may be better off paying down cards aggressively without consolidating.
Ways to Consolidate Credit Card Debt
There are two main options to consolidate credit card debt:
- Personal Loan
- Balance Transfer Credit Card
Let’s compare the pros and cons of each approach.
Personal Loans to Consolidate Credit Card Debt
With a personal loan, you borrow money from a bank or online lender to pay off your credit cards, then make fixed monthly payments on the loan until it’s repaid.
Pros of Personal Loans
- Fixed interest rate – The rate is locked in for the full term of the loan.
- Fixed monthly payments – Your monthly amount due never changes.
- Predictable payoff – Loans have set repayment terms, usually 2-5 years. You know when the debt will be paid off.
- Can borrow larger amounts – Many lenders will loan up to $35,000 or $40,000.
Cons of Personal Loans
- Credit check required – Applying involves a hard credit inquiry which dings your credit score.
- Loan origination fees – Some lenders charge 1-6% of the loan amount as upfront fees.
- Secured loans require collateral – For poor credit, lenders may require you to put up an asset like your car as collateral.
Balance Transfer Credit Cards
With a balance transfer, you move your existing credit card balances onto a new card with a promotional 0% APR intro period.
Pros of Balance Transfer Cards
- 0% intro APR – Pay no interest for 12-21 months depending on the card.
- Pay down debt faster – Make bigger dents in your balance when 100% of payments go to principal during the intro period.
- Access card benefits – You get the rewards, cash back, or travel perks that come with the new card.
Cons of Balance Transfer Cards
- Balance transfer fees – Cards often charge 3-5% of the amount transferred as an upfront cost.
- Future rate uncertainty – After the intro period, the ongoing APR is set by the card issuer and varies over time.
- Lower balance limits – Many cards cap balance transfers at $5,000 or $10,000.
- Intro period ends – If the balance isn’t paid off by the end of the intro period, interest kicks in and minimum payments rise.
6 Steps to Consolidate Credit Card Debt
Follow this complete step-by-step process to consolidate your credit card balances:
Step 1: Assess your current debt
- List all credit cards, balances, interest rates, monthly payments
- Calculate total balance across all cards
- Understand how much you’re currently paying in interest each month
Step 2: Check credit reports and scores
- Get free copies of your credit reports from AnnualCreditReport.com
- Check your credit scores on sites like Credit Karma and Credit Sesame
- Verify all information is accurate and work to correct any errors
Step 3: Compare consolidation options
- Research offers from multiple personal loan lenders and balance transfer cards
- Compare interest rates, fees, terms, amounts, perks
- Run the numbers to see how much you’ll save in interest
Step 4: Apply for your chosen option
- Only apply for the loan or card you want
- Too many applications will dent your credit score
- Be sure you can pay any upfront fees from your budget
Step 5: Get approved and complete consolidation
- If approved, accept loan offer or transfer balances to new card
- Use loan funds or available credit to pay off credit card balances
- Close old credit card accounts to avoid temptation
Step 6: Adjust your budget
- Make sure to make monthly payments on time
- Budget to pay off new consolidated debt on schedule
- Avoid running up credit cards again after consolidation
- Stick to your financial plan and path to become debt-free
Personal Loan Lenders for Credit Card Consolidation
One smart way to consolidate credit card debt is with a personal loan from an online lending company. Here are some top lenders to consider:
|LendingClub||$1,000 – $40,000||7.99% – 29.99% APR||3 or 5 years|
|Prosper||$2,000 – $40,000||6.95% – 35.99% APR||3 or 5 years|
|SoFi||$5,000 – $100,000||5.99% – 20.28% APR||3 to 7 years|
|Best Egg||$2,000 – $35,000||5.99% – 29.99% APR||3 to 5 years|
|Upstart||$1,000 – $50,000||6.5% – 35.99% APR||3 or 5 years|
|Lightstream||$5,000 – $100,000||3.49% – 19.99% APR||2 to 12 years|
Be sure to compare offers across multiple lenders to find the best personal loan rates and terms for consolidating your credit card debt. Get prequalified to view personalized loan offers.
Balance Transfer Credit Cards to Consolidate Debt
If you have good credit, a balance transfer credit card can be an affordable option for consolidating credit card balances. Here are some top balance transfer card offers:
|Card||Balance Transfer Offer||Intro APR||Regular APR|
|Chase Slate||0% fee intro offer||0% for 15 months||16.49% – 25.24% variable|
|Citi Simplicity||3% fee ($5 min)||0% for 21 months||16.49% – 26.49% variable|
|BankAmericard||3% fee ($10 min)||0% for 18 months||16.49% – 26.49% variable|
|Wells Fargo Reflect||3% fee||0% for 21 months||16.49% – 27.49% variable|
|U.S. Bank Visa Platinum||3% fee||0% for 20 billing cycles||16.49% – 24.99% variable|
Compare the fees, intro rates, regular APR, credit required, and benefits to select the best balance transfer card for consolidating higher interest credit card debt onto a lower cost card.
Tips for Managing Consolidated Credit Card Debt
Once you’ve consolidated your credit card balances onto a personal loan or new credit card, be sure to manage the debt wisely going forward:
- Make payments on time each month to avoid fees and penalty APRs
- Pay at least the minimum but ideally more to pay off debt faster
- Avoid charging up cards again so you don’t fall back into debt
- Pay extra toward principal whenever possible to reduce interest costs
- Stick to your budget and financial plan for becoming debt-free
- Maintain your credit by keeping credit utilization low and making timely payments
- Contact lender if struggling to make payments to discuss hardship options
With diligent management, credit card consolidation can simplify payments, slash interest costs, and help you achieve financial freedom faster.