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5 Ways to Consolidate Credit Card Debt

If the new debt has a lower APR than your credit cards, consolidating your credit card debt might be a smart idea.

Credit card debt reduction is a method of consolidating various credit card balances into a single monthly payment.

If the new debt has a lower annual percentage rate than the credit cards, consolidating your debt is a good idea. This will help you save money on interest, make your bills more manageable, and shorten the time it takes to pay off your debt.

The best debt consolidation strategy is determined by the amount of debt you have, your credit score, and other factors.

The five most successful ways to pay off credit card debt are as follows:

  • Refinance with a balance transfer credit card.
  • Consolidate with a personal loan.
  • Tap home equity.
  • Consider 401(k) savings.
  • Start a debt management plan.

1. Balance transfer card


  • 0% introductory APR period.


  • Requires good to excellent credit to qualify.
  • Usually carries a balance transfer fee.
  • Higher APR kicks in after the introductory period.

This alternative, also known as credit card refinancing, converts credit card debt to a balance transfer credit card with no interest for a promotional period, which is usually 12 to 18 months. To apply for most balance transfer cards, you'll need good to excellent credit (690 or higher on the FICO scale).

While a good balance transfer card would not charge an annual fee, many issuers will charge a one-time balance transfer fee of 3% to 5% of the transferred amount. Calculate if the interest you save over time can cover the expense of the charge before you pick a card.

Aim to pay off your balance in full before the 0% intro APR period expires. After that, any outstanding balance would be subject to the standard credit card interest rate.

2. Credit card consolidation loan


  • Fixed interest rate means your monthly payment won’t change.
  • Low APRs for good to excellent credit.
  • Direct payment to creditors offered by some lenders.


  • Hard to get a low rate with bad credit.
  • Some loans carry an origination fee.
  • Credit unions require membership to apply.

To consolidate credit card or other forms of debt, you can use an unsecured personal loan from a credit union, bank, or online lender. The loan should, in theory, give you a lower APR on your debt.

Credit unions are non-profit lenders who may be able to provide more flexible loan terms and lower rates to their members than online lenders, especially for borrowers with fair or poor credit (689 or lower on the FICO scale). Federal credit unions charge a maximum APR of 18 percent.

For good-credit borrowers, bank loans offer affordable APRs, and current bank customers can receive benefits such as greater loan amounts and rate discounts.

Most online lenders allow you to pre-qualify for a credit card consolidation loan without impacting your credit score, but banks and credit unions are less likely to provide this service. Pre-qualifying gives you an idea of the interest rate, loan number, and term you might get if you apply formally.

Look for lenders that have unique debt consolidation features. Some lenders, such as Payoff, specialize in credit card debt consolidation. Others, such as Discover, will direct loan funds to your creditors, making the process easier.

Not sure if a personal loan is the best option for you? Enter all of your debts into our debt restructuring calculator to see average lender rates and measure savings.

3. Home equity loan or line of credit


  • Lower interest rates than personal loans.
  • May not require good credit to qualify.
  • Long repayment period keeps payments lower.


  • You need equity in your home to qualify, and a home appraisal is usually required.
  • Secured with your home, which you can lose if you default.

If you're a homeowner, you may be able to use the equity in your house to get a loan or a line of credit to pay off your credit cards or other debts.

A home equity loan is a one-time payment with a fixed interest rate, while a line of credit functions similarly to a credit card with a variable rate.

During the draw phase, which is normally the first ten years, a HELOC often needs interest-only payments. To minimize the principal and make a dent in your total debt during that period, you'll need to pay more than the minimum payment due.

Since the loans are backed by your home, you'll probably get a better deal than you would on a personal loan or a balance transfer credit card. You will, however, lose your home if you do not make your payments on time.

4. 401(k) loan


  • Lower interest rates than unsecured loans.
  • No impact on your credit score.


  • It can reduce your retirement fund.
  • Heavy penalty and fees if you can't repay.
  • If you lose or leave your job, you may have to quickly pay back your loan.

Taking a loan from an employer-sponsored retirement account, such as a 401(k) plan, is not recommended because it can have a direct effect on your retirement.

After you've ruled out balance transfer cards and other forms of loans, consider it. One advantage is that this loan will not appear on your credit report, so it will have no effect on your credit score. 

However, there are major disadvantages: if you are unable to repay, you will be subject to a significant penalty as well as taxes on the unpaid balance, and you could find yourself in even more debt.

401(k) loans are often usually due in five years, unless you lose your job or quit; in that case, they are due on tax day the next year.

5. Debt management plan


  • Fixed monthly payments.
  • May cut your interest rate by half.
  • Doesn't hurt your credit score.


  • Startup fees and monthly fees are common.
  • It may take three to five years to repay your debt.

Debt consolidation schemes combine multiple loans into a single monthly payment at a lower interest rate. It's better for those who are having trouble paying off credit card debt but aren't eligible for other options due to a poor credit score.

Debt management strategies, unlike other credit card restructuring solutions, have no impact on your credit score. If your debt exceeds 40% of your income and you can't pay it off in five years, bankruptcy could be a better choice.

A nonprofit credit counseling service will help you find a debt management strategy.

Frequently asked questions

What is debt consolidation?

Multiple obligations, such as high-interest credit cards or loans, are consolidated into a single payment.

Should I consolidate debt?

If you can get a lower interest rate than what you're paying now on your loans, debt restructuring might be a good option for you. This will save you money on interest, lower your monthly payment, and help you pay off your debt faster.

How will consolidating debt affect my credit?

When a lender or card issuer performs a hard credit inquiry, your credit score can temporarily drop. However, if you pay on time and avoid debt in the future, the net impact will be beneficial.

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