Key takeaways

  • Consolidating your credit card debt may help you to simplify your finances, save money on interest and get out of debt more quickly
  • A number of different credit card debt consolidation options exist, from balance transfer cards to personal loans and more
  • Before choosing to consolidate your debt, you need to carefully evaluate your specific circumstances to ensure any options you qualify for make good financial sense – and put a plan in place to prevent future debt from creeping back up

Trying to pay off all your credit card bills can feel overwhelming, especially if your interest rate is high or you’re carrying a large balance on multiple cards. If you’re struggling to make monthly payments on your cards, consolidating your debt could be the best solution for you.

Consolidating means that all of your debts, whether credit card bills or loan payments, are combined into a single monthly payment. It could be a great solution if you have a number of credit card accounts or loans and want to simplify or reduce your payments.

Read on to find out why consolidating your credit card debt could work for you and familiarize yourself with the benefits you’ll receive if you do it.

Common benefits of credit card consolidation

Consolidating credit card debt can provide some common benefits, such as:

  • Reduced interest rate: If you have a high-interest credit card, debt consolidation may lower your interest rate and help you save money. A lower interest rate means more of your monthly payment goes toward the principal balance, which helps you pay off debt faster.
  • Tax-deductible interest: Some equity loan and debt consolidation loan interest, for example, is tax deductible, so make sure you check with an accountant before you make a decision.
  • One monthly payment: Instead of having multiple payments due at different times, consolidation may help simplify your budget by enabling you to have all of your loans paid off at the same time each month. Borrowers with multiple types of debt — credit cards, student loans, medical bills and more — can use this strategy to combine those loans into a single monthly payment at what will hopefully be a lower interest rate.

There are different ways to consolidate debt. Here are the advantages and disadvantages of a few of the most popular methods:

Use a balance transfer card

Balance transfer cards, which let you move high-interest debt to a new low-rate account, should be one of the first options you explore when trying to consolidate debt.

What is a balance transfer card?

Essentially, a balance transfer card is essentially a revolving line of credit — just like a traditional credit card. But these cards usually come with a special low interest rate (often a 0 percent APR) for a limited time period, specifically for transferring debt.

The introductory rate can last anywhere from 6 to 21 months, depending on the card. During that period, you’ll pay no interest on your existing balances as long as you make at least the minimum monthly payment on time. Once this introductory period ends, however, you’ll be charged interest, which is currently averaging above 20 percent.

When you’re consolidating credit card debt with a balance transfer card, it’s important to keep in mind when that promotional period ends. If you move your balance but don’t pay off the full amount before the rate reverts to its normal level, you’ll lose the benefits associated with the balance transfer card.

Pros and cons of using a balance transfer card to consolidate credit card debt

The pros and cons of using a balance transfer credit card to consolidate credit card debt include:


  • You can simplify your finances by consolidating multiple debts into one payment each month.
  • You can save hundreds in interest charges over the life of the balance if you pay off your transferred balance before the promotional rate expires.


  • The 0 percent introductory rate may expire before you’ve paid off your entire transferred balance. Then, the interest rate will increase (it may even be higher than what you’re paying on all your other cards combined).
  • In some cases, the introductory rate doesn’t apply to new purchases made with the balance transfer card, only to the transferred balance.

Tap into your home equity

If you have equity in your home, you could use it to consolidate credit card debt. Homeowners with a lot of high-interest credit card debt can save money on interest payments and pay off their balances faster with a cash-out refinance or a home equity loan.

What is home equity?

A home equity loan is basically a second mortgage on your home — you borrow against the equity that has accrued over time in your property. You’ll usually have a fixed interest rate, which makes it easier to plan for how much your monthly payments will be. Since second mortgages typically have lower interest rates than credit cards, your total debt has the potential to be reduced.

Some homeowners with good credit might be able to refinance their mortgages for a lower rate than what they’re paying on their credit cards, but that’s not necessarily true for everyone. Even if the interest rate isn’t lower, consolidating debts into a new mortgage still could help you save money if you have very high rates on your credit cards.

Pros and cons of using home equity

The pros and cons of using home equity to consolidate credit card debt include:


  • You’ll likely save on interest because most home loans have lower fixed interest rates than credit cards. You’ll also be able to pay down the principal faster and get out of debt sooner if you can afford higher monthly payments.
  • You’ll avoid having to make separate payments on different accounts every month, which can save time and reduce the hassle of keeping track of all those bills.


  • By transferring your unsecured credit card debt to a home equity loan that is secured by your home, you could risk losing your house if you fall behind on your payments.
  • If you have a lot of debt to pay off, it will take a long time to do so. Mortgages can last 15 or 30 years, depending on which term length you choose. If you’re close to retirement age, taking out a 15- to 30-year loan may not be a good idea. If a borrower dies before the loan is paid off, their estate has to repay the mortgage balance.

Take out a personal loan

Using a personal loan to consolidate credit card debt could be a good solution for you, depending on your financial situation. Personal loans are a popular way to consolidate credit card debt because they offer a predictable way to pay it off quickly.

What is a personal loan?

With a personal loan, you get a lump sum of money, and you repay it over a fixed period of time at a fixed interest rate. Because personal loans are generally installment loans, the monthly payments will be the same every month (unlike credit card payments that can vary from month to month depending on your balance). This can help you stay on track with your budget and keep your finances organized.

Personal loans are an increasingly popular way for consumers to pay off their higher-interest credit card debt, because they offer a predictable way to pay off debt quickly. If you’re approved for a personal loan with a lower interest rate than your existing credit card debt, it could be a smart move to use that money to pay off multiple cards. Not only will this streamline your monthly payments into one bill, but you could also save on interest while paying off your balances faster.

Pros and cons of using a personal loan to consolidate credit card debt

Consolidating your debts with a personal loan could help you manage your debt more effectively and save money on interest over time, but there are still some advantages and disadvantages to consider if you choose to take out a loan:


  • It can help simplify your bills and get you out of debt faster if the interest rate on your new loan is lower than that of at least some of your cards. If that’s the case, you’d end up paying less interest overall over time, which will save you money.


  • To consolidate loans, you’ll need good or excellent credit — usually a FICO score of 670 or higher — and sufficient income to afford the new loan payment. If your score is below 670, other options may be better for you.
  • A personal loan might have a higher interest rate than some of your credit cards, and it won’t lower your interest rate if you have good credit (although it will if you have bad credit).
  • Even though the interest rate is fixed, each payment will be applied first toward any fees and then the interest accrued on the balance, meaning that early payments might not apply much toward principal reduction until later in the life of the loan.

Look into a 401(k) loan

One of the best ways to consolidate credit card debt is using a loan from your 401(k) — an investment account that allows you to stash away money for retirement. If you’re on shaky financial ground but are confident you’ll be able to get back on track quickly, borrowing from your retirement funds may be just what you need.

What is a 401(k)?

With a 401(k) account, money is deducted directly from your paycheck before taxes are withdrawn, meaning that it can greatly reduce your income tax liability. If you have a  401(k) account, you may have the option to take out a loan from it. The maximum amount you can borrow is usually around $50,000, or half of your vested balance, whichever is less.

Pros and cons of using a 401(k) to consolidate credit card debt

A 401(k) can allow you to consolidate your debt without having to pay any interest, and it can be much easier than getting a traditional consolidation loan. However, it also has some significant disadvantages that you’ll want to consider carefully before borrowing from your retirement accounts.


  • The interest rate is generally lower than you’ll find on credit cards or personal loans, and the interest you pay goes back into your retirement account, where it grows tax-deferred (and possibly tax-free if it’s a Roth 401(k) plan).
  • Since the loan is secured by your retirement savings, there’s no need for the lender to do a credit check.
  • If your employer lets you borrow from your 401(k), the process is relatively quick. You’ll need to fill out an application, but there’s no waiting period or credit check required.
  • Unlike personal loans, 401(k) loans don’t come with origination fees or prepayment penalties.


  • 401(k) loans must be repaid within five years (unless you leave your job). If you leave your job for any reason, the loan will typically be due in full within 60 days. If you can’t pay, it will be considered an early distribution and taxed as income. You’ll also owe a 10 percent penalty if you’re younger than 59½. It’s important that you make payments on time every month. If not, the loan will go into default.

Use a debt management program

A debt management program (DMP) can help you reduce your interest rates, which means more of your monthly payment goes to the principal balance — and less to interest. This is a good option if you don’t think you’ll be able to pay off your debt in three years (if it’s not tied to a specific purchase) or if you want to consolidate without taking out a loan or opening a new line of credit.

What is a debt management program?

Put simply, a DMP is an informal agreement with your creditors that allows you to pay off all of your credit card and unsecured personal loan debt through one monthly payment to your credit counselor. By combining several small debts into one larger debt, managing your debt becomes easier because you have only one payment to make each month. You’ll also likely save on interest charges by consolidating high APR cards into a lower-interest loan or balance transfer.

In order to qualify for this type of program, you’ll need to be current on your payments and owe at least $1,000 in unsecured debt (debt not backed by collateral, such as a home). When you enter a DMP, your counselor will typically work with each creditor to negotiate lower interest rates and waive certain fees, such as late and over-limit fees.

DMPs are generally a good option if you don’t think you’ll be able to pay off your debt in three years (if it’s not tied to a specific purchase) or if you want to consolidate without taking out a loan or opening a new line of credit. However, you will likely be required to close your existing lines of credit as part of the program, which may have a detrimental effect on your overall credit profile.

Pros and cons of using a debt management program

The best debt management program will help you get out of debt faster, but it’s important that you understand the pros and cons before considering:


  • As the primary benefit of debt management programs, it’s possible that your interest rates will decrease by as much as 50 percent. If so, that means twice as much of every dollar goes to pay down your principal instead of interest.
  • You make one monthly payment to the company (usually by automatic transfer from a checking account), which then pays all your creditors for you. You may be able to negotiate lower minimum payments or fees compared with what you’d pay on your own.
  • The companies will contact creditors for you to try and get late fees and over-limit fees removed from your accounts.


  • You may be required to close your accounts as part of your DMP. If this decreases the length of your credit history, your score could decline, affecting your ability to access new credit in the future.
  • Although you may be able to get some of your debts removed from your credit report under the program, you may still show as having too much debt per available credit limit.
  • Both legitimate and predatory DMPs exist. Before committing to work with an individual program, do your due diligence to ensure you’re working with a reputable partner.

The bottom line

If you’re carrying a significant amount of credit card debt, consolidating it into a single loan may be the wisest financial decision you can make. By doing so, you can avoid paying various interest rates from each creditor, and instead consolidate your credit card debt and pay a single fixed interest rate. These methods not only offer relief from your credit card debt, but they also give you more control over your financial future and eliminate the temptation to spend on your credit card by eliminating the card itself.

Before deciding to consolidate personal credit card debt, however, you should carefully evaluate your credit card balances, interest rates and monthly payment amounts — as well as how you’ll handle future charges. If you don’t have a plan for controlling spending once you’ve consolidated your credit cards, you may find yourself running your balances back up. This will leave you paying back not just your consolidation loan, but your new credit card balances as well.

Only after you’ve carefully considered these and other variables will you be able to choose a strategy that enables you to begin saving money while getting out of debt.