Five Ways to Consolidate Credit Card Debt

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

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

By consolidating debt, consumers can achieve a lower interest rate, make payments more manageable, or shorten payoff.

How to accomplish the consolidation depends on your credit score and how much debt you have, along with other factors.

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

Consolidate alongside a personal loan

Consolidating alongside a personal loan has pros and cons to consider.


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


  • Some loans may carry an origination fee.
  • If you have bad credit, it may be hard to get a low rate.
  • Some credit unions require membership to apply.

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

Credit unions are not-for-profit lenders. They may offer their members lower, 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 provide competitive APRs for borrowers with good credit, and benefits for existing bank customers can include rate discounts and more significant 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 that 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 a 401(k) loan


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


  • Heavy fees and penalties if you can’t repay.
  • Reduces your retirement fund.
  • If you leave or lose your job, you may have to repay your loan quickly.

It is not advisable to take a loan out from an employer-sponsored retirement account like a 401 (k) plan. Doing so can significantly impact your retirement.

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

A benefit of this type of loan is that it won’t show up on credit reports. There is no impact on your score.

However, the drawbacks are significant. If you can’t repay the loan, you will owe taxes on the unpaid balance, a healthy penalty, and you may be left to struggle with even more debt.

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

Get a balance transfer card


  • Usually, 0% introductory APR period for borrowers.


  • Can carry a balance transfer fee.
  • Higher APR kicks in following the introductory period.
  • Requires good to excellent credit to qualify.

The option of credit card refinancing 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 long. To qualify, borrowers must have excellent credit (690 or higher FICO score) 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 to 5% of the amount being transferred. Before you decide which card to choose, borrowers should calculate whether the saved interest will wipe out the cost of the fee over time.

Borrowers should aim to pay down the balance before the 0% introductory APR period ends. Any remaining balance will have a regular credit card interest rate after the period is over.

Use a home equity line of credit or loan


  • May not require good credit to qualify for a line of credit.
  • Lower interest rates than with personal loans.
  • Long repayment period helps keep payments lower.


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

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

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

A home equity line of credit often requires interest payments only during the first ten years or draw period. That means you’ll need to pay more than the required minimum payment to make a dent in your overall debt and reduce the principal during that time.

Since your home secures loans, you are more likely to get a lower rate than what you would find with a balance transfer credit card or personal loan. However, you can lose your house if you don’t keep up with payments.

Debt management plans


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


  • It may take years, three to five years, to repay your debt.
  • Monthly fees and startup fees are standard.

Debt management plans can roll several debts into one monthly payment at a reduced interest rate. Programs work best for individuals who don’t qualify for other options because of a low credit score or struggling to pay off credit card debt.

Differing from other credit card options, debt management plans don’t affect your credit score. If your debt is too high, more than 40% of your income, and cannot be repaid within five years, bankruptcy may be an option to look into.