How to Consolidate Credit Card Debt

  • A balance transfer credit card can help consolidate credit card debt
  • Debt consolidation requires you to pay your entire debt, including interest and fees
  • You might want to wait to consolidate debt if you’re applying for a mortgage or home loan 

You can consolidate credit card debt by moving balances from multiple credit cards to a single account. One of the most common ways to do this is with a balance transfer credit card, but you can also use certain loans to consolidate credit card debt.

Why Should You Consolidate Credit Card Debt?

Consolidating credit card debt can offer several benefits.

You’ll have fewer accounts and due dates to manage, which can make it easier to track your debt and organize your personal finances. As a result, you might be less likely to accidentally miss a payment and have to pay a fee or hurt your credit score.

Consolidating credit card debt could also lower your debt’s interest rate if you transfer the debt to a card with a lower APR, which can save you money in interest and help you pay off the debt sooner. Or you may be able to get a lower monthly payment, which can free up funds for other parts of your budget.

Using a Balance Transfer Credit Card to Consolidate Debt

Balance transfer credit cards are one of the most common debt consolidation tools because cards may offer an introductory low or 0% annual percentage rate (APR) on transferred balances.

The intro rate and promotional period can vary depending on the card. For example, one card might offer you 0% intro APR for six months while another gives you 18 months. You also might receive balance transfer offers on your current credit cards, but you generally can’t transfer balances between credit cards or loans from the same company.

You often have to pay a 3% to 5% balance transfer fee on each transfer. Compare the fee to the potential interest savings to determine if a balance transfer offer makes sense.

Ideally, you can pay off the balance before the end of the promotional period. If you don’t, any remaining balance will start to accrue interest at the card’s standard APR. Also, check if there’s a promotional rate on purchases. If there isn’t, your purchases could still accrue interest daily.

Taking out a Loan for Credit Card Debt Consolidation

Another option is to take out a loan and use the proceeds to pay off your credit card balances. People often turn to unsecured personal loans for consolidating credit card debt. You could also look into a home equity loan or line of credit, but be careful about taking on additional debt that puts your home at risk.

Personal loans may offer a lower interest rate than credit cards, and they often have fixed rates and repayment periods. Some people like the certainty this brings, as you can budget for your monthly payment and know when you’ll pay off the debt. However, personal loans don’t have 0% APR offers, and some lenders charge an origination fee.

If you’re considering a personal loan, try to get several loan offers and compare the rates, fees and repayment terms to see which will be best.

When Should You Avoid Consolidating Debt?

Consolidating credit card debt generally doesn’t make sense if you don’t qualify for a low interest balance transfer or loan offer. Even if you can, there are a few circumstances when you might want to avoid consolidating credit card balances.

If you have credit card debt because of overspending, you may want to consider your financial habits and mindset first. Otherwise, you could wind up deeper in debt if you move your balances and then continue overspending.

Debt consolidation also won’t get rid of your debt or monthly payments. If you can’t afford your bills because of a medical emergency or lost job, you may want to reach out to your creditors to ask about hardship options.

Additionally, applying for and opening new credit cards and loans might hurt your credit score because a hard inquiry is placed on your credit report. Your score can recover as you make on-time payments and pay down the debt. However, if you’re applying for a mortgage or auto loan, you might want to wait and consolidate the debt after you close on the new loan.

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