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Credit card consolidation allows borrowers carrying debt over several cards to roll all those debts into a single loan with one monthly payment — and hopefully a lower interest rate. Consolidating your credit card debt can be a savvy strategy for getting a handle on your finances, as it streamlines your debt payoff and can save you money over time.

Here’s what you need to know about credit card consolidation so you can find the best strategy for your situation:

What is credit card consolidation?

Carrying debt on multiple credit cards can be expensive and stressful. Staying on top of more than one monthly payment increases the possibility that you might miss one and accidentally default. You also probably have different interest rates for each card and can’t easily tell how much each debt is costing you over time.

One way to handle this problem is through credit card consolidation. When you consolidate your credit card debt, you take on a new loan to pay off the old debts. You’ll then only have a single monthly payment and interest rate to worry about. In addition, taking out a personal loan for credit card consolidation can often lower your total interest rate, which can save you money as you pay off the loan.

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Credit card consolidation: What to consider

Credit card consolidation can be a smart way to pay off your debt for less money, but it’s not without pitfalls. Before you apply for a credit card consolidation loan, consider these strategies to help you get a handle on your credit card debt:

  • Create a budget. Living without a budget can leave you feeling financially overwhelmed. Take the time to determine your exact monthly income and required expenses, including all your necessary living expenses and monthly minimum debt payments. Once you know how much you have coming in and going out, you can make better decisions with your discretionary income.
  • Analyze your spending habits. If you struggle with credit card spending, credit card consolidation could leave you deeper in debt if you run up new balances on the paid-off cards. Looking at your spending habits to determine any common temptations or weak spots can help you figure out the best way to put guardrails around your credit card usage. For example, you might remove your credit card information from online retailers, put your cards someplace safe but inaccessible, or only carry cash.
  • Ask creditors for lower monthly payments. You can often reduce your monthly payment amount simply by asking. If you’re struggling to afford your monthly minimum payments for your credit card debt, reach out to each of your credit card issuers to ask for a lower monthly payment. This can be a relatively quick way to give yourself a little financial breathing room while you research the best consolidation options. Just be aware, paying less per month will likely mean more interest costs and a longer repayment time.

Four ways to consolidate credit card debt

You can consolidate credit card debt in four main ways. The right credit card consolidation method for you depends on your specific situation and needs. Here’s what to expect from each:

Credit card consolidation loan

Pros
Cons
Some lenders offer direct payment to creditors Some loans have an origination fee
Fixed interest rate for consistent monthly payments; fixed repayment term ensures the debt will be paid off by a certain date Borrowers with poor credit are less likely to qualify for a low rate
Consistent, on-time payments can boost your credit score A shorter repayment term may mean a higher minimum monthly payment

Check Out: Personal Loan Requirements

A credit card consolidation loan is a personal loan that allows you to pay off all your credit card debts. You’ll then make payments on the new loan; you’ll only have one monthly payment and one interest rate. Some lenders will pay your creditors directly, which simplifies the process even more.

If you have good credit, you can generally expect to get a lower interest rate with a personal loan than you’re paying on your credit cards.

Banks, credit unions, and online lenders all offer credit card consolidation personal loans. Make sure you shop around to find the best loan with the most favorable rates, terms, and fees before you choose one. Do consider fees in your cost calculations, as some lenders charge an origination fee for their consolidation loans, in addition to other fees.

Credible partners with credit card consolidation specific lenders, and you can easily check your rates and compare our lenders all in one place.

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Balance transfer credit card

Pros
Cons
Possible 0% intro APR Higher APR kicks in after intro period
Single monthly payment Most balance transfer cards have a balance transfer fee
Potential credit card perks with the new card Borrowers with poor credit may not qualify

A number of credit card issuers offer favorable rates for balance transfers. These rates are often as low as 0% APR for an introductory period. Transferring a balance to such a credit card may also be known as refinancing your credit cards.

If you’re able to pay off the balance transfer credit card before the introductory period ends, this strategy can be an inexpensive way to pay off your credit card debt. However, depending on how much debt you have, it may be impossible to pay it all off before the introductory period ends.

Home equity line of credit (HELOC)

Pros
Cons
May not require good credit Depletes the equity in your home
Since this is a secured loan, interest rates are generally low Risks your home if you default
Can draw funds as needed Variable APR

A home equity line of credit (HELOC) is a kind of revolving credit that borrows against the equity you have built up in your home. Since the line of credit is backed by the equity in your home, it’s considered a secured loan, which can allow you to access more favorable interest rates and terms.

HELOC interest rates are variable, since they fluctuate with the prime rate. That said, they’re still likely to be much lower than credit interest rates, even for those with less-than-stellar credit.

Keep in mind: The biggest downside to using a HELOC to pay off credit card debt is the fact that you’re trading unsecured debt for secured debt. If you default on your HELOC, you could lose your home. Borrowers who choose this method of credit card consolidation should make sure they have a solid budget and a plan for handling their credit card spending.

Debt management plan

Pros
Cons
Unlike debt settlement, a debt management plan doesn’t directly affect your credit score May take over three years to pay off debt
Eligibility is not dependent on having a good credit score Borrowers may be required to close current credit accounts
Can potentially make delinquent accounts current Borrowers may not be allowed to access new lines of credit until all current debt is repaid

If you can’t qualify for a personal loan, balance transfer card, or HELOC, a debt management plan may be the best option for paying off your credit card debt. Unlike the other strategies on this list, a debt management plan won’t use a new loan or line of credit to pay off your credit card debt.

Instead, you’ll work with a credit counseling agency to create a plan for paying off your debt. The counselor will go through your income and expenses with you to help you create a budget and determine an appropriate monthly payment for your outstanding debt. They’ll then negotiate with your creditors to reduce or eliminate fees and interest rates and set up a new payment plan.

Once the debt management plan is in place, you’ll make a single monthly payment to the credit counseling agency, which will then distribute the money to your various creditors. In general, you can expect to get your debts paid off in three to five years.

If you’re interested in a debt management plan, you’ll need to work with a reputable credit counseling agency. You can find one via either the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Carrying credit card or other unsecured debt may feel overwhelming, but Credible is here to help. Credit card consolidation strategies can make your debt more manageable so that you can see the light at the end of the debt-payoff tunnel.

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Read More: What Is Your Debt-to-Income Ratio? How to Calculate DTI

About the author

Emily Guy Birken

Emily Guy Birken

Emily Guy Birken is a Credible authority on student loans and personal finance. Her work has been featured by Forbes, Kiplinger’s, Huffington Post, MSN Money, and The Washington Post online.

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