If you find yourself in credit card debt, you’ve probably wished for a way for it all to magically disappear. While Bankrate can’t be your financial genie, we can guide you through some options to bring you one step closer to being debt-free.
By consolidating your credit card debt, you’ll merge your outstanding amounts across all of your credit cards into one monthly payment. You might even be able to consolidate your unpaid balances into a single, lower-interest loan to pay down your debt in less time.
If you’re wondering how you might best consolidate your credit card debt, you have more than one option to explore. Here are the top three:
Consolidate debt with a balance transfer credit card
Pros and cons
Balance transfer credit cards are one of the most common ways to consolidate credit card debt. When you open up a balance transfer card, you have the capability to move your existing credit card balances to this new card account.
Balance transfer cards typically come with a low interest rate, typically as part of a promotional period with zero percent interest for up to 21 months. Before applying for a balance transfer card, you’ll want to know the card’s annual percentage rate (APR) once the promotional rate ends. Additionally, most cards will charge a fee to transfer balances from another credit card.
Your new credit card will have a credit limit to determine how much debt you can transfer, so be sure to know the details and plan ahead of time to consolidate your debt efficiently.
Due to the limits on the amount you can transfer, balance transfer cards are best suited for cases with smaller amounts of debt.
In addition to checking out its post-promotional APR, look into your card’s fees for each balance you transfer. You’ll also want to do the math ahead of time to determine if this method will improve your situation. If your debts exceed your credit limit or if you expect to be paying off debts at a high interest rate, there might be better options.
If it feels like this option could work for you, check out Bankrate’s Balance Transfer Calculator, where you can enter the details of your outstanding credit card debt and estimate how long it will be before it’s paid off. By simply plugging in information like your existing cards’ APR and outstanding balances and details on your new card, you can make a comprehensive plan for becoming debt-free.
If you’re able to pay off your debt during your promotional period and avoid paying interest altogether, using a balance transfer card is an excellent solution.
Consolidate credit card debt with a personal loan
Pros and cons
If your debt has grown beyond the capabilities of a balance transfer card, a bank, credit union or an online lender can help consolidate credit cards by taking out a personal loan. Rather than paying off multiple card balances with high interest rates, you’ll pay back a single loan with a lower interest rate than your current cards.
Just like credit cards, whether you’ll be able to take out a personal loan is based on your credit history, credit score and income. If you’re applying for a loan while holding a low credit score, credit unions are known to sometimes be more lenient than other financial institutions — offering lower interest rates, flexible terms and a greater likelihood to be approved.
The vast majority of personal loans will provide a higher credit line than you might get with a credit card. With limits regularly as high as $35,000, consolidating larger amounts of credit card debt is a better fit with a personal loan.
Financial institutions will charge a prepayment fee at times, possibly making this method more expensive than expected when consolidating a large debt balance. Plus, it might be difficult to qualify for a low interest loan depending on your credit score.
By securing an interest rate lower than what you’re paying on your credit cards and potentially having years to pay off your debt, you can put yourself in a better position financially. If you qualify for a beneficial personal loan, the simple fixed interest rate and payment structure is an interesting option.
Consolidate credit card debt with a home equity loan
Pros and cons
If you’re a homeowner, your best debt consolidation option might be a home equity loan. With these lump-sum, fixed-interest-rate loans, you can borrow money based on the equity you have in your home and use the borrowed funds to pay off your debt.
You’ll once again want to look to a bank, credit union or online lender when pursuing a home equity loan.
Thanks to the nature of these secured loans, they’ll generally offer lower interest rates than personal loans or balance transfer cards. However, home equity loans (as the name implies) use your home as collateral, so staying up to date on payments is a must or you could be at risk of losing your house.
Home equity loans can often come with hefty fees, including home appraisal fees, closing fees, origination fees and more. Prior to deciding whether this is the right option for you, evaluate both the risk and added fees to calculate the true cost of a home equity loan.
A great credit score isn’t a requirement with home equity loans, so it’s a risky-but-viable solution if your score or outstanding debt amount prevents you from taking out a personal loan or a balance transfer card.
Get informed about debt solutions
Still unsure of your best plan of action when it comes to handling your debt? Bankrate has more information to help you find a solution:
- How to do a credit card balance transfer
- Debt consolidation: Is it right for you?
- What you need to know about debt settlements
- 5 best debt consolidation options
Find a balance transfer card that's right for you.