The 5 Most Effective Ways to Consolidate Credit Card Debt

Credit Cards

Dealing with credit card debt can be overwhelming. If you’re having trouble making your payments, consolidating your credit card debt may be an effective solution to your problems.

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The best way to consolidate credit card debt depends on several factors. This includes how much debt you have, what your current interest rates are, and how close you are to defaulting on your accounts.

5 Effective Ways to Consolidate Credit Card Debt

Here are five ways to consolidate credit card debt effectively:

  • Balance transfer credit card
  • Low-interest debt consolidation loan
  • Debt management plan
  • Home equity loan or HELOC
  • 401(k) loans

1. Balance Transfer Credit Card

If you’re close to paying off your credit card debt, consider consolidating your balances onto one card. Many credit card issuers offer low introductory APRs or even 0% APR deals if you transfer balances from other cards.

If you can find a lower rate than what you’re currently paying, you’ll save a lot of money on interest payments. And instead of trying to remember multiple due dates, you can focus on one monthly payment.

You want to pay off the full amount of your credit card debt before the introductory APR expires. Otherwise, you might end up paying even more money in interest than if you had simply paid each balance separately.


  • Save money on interest
  • Pay off credit card debt more quickly
  • Streamline your monthly payments


  • Most credit cards come with a balance transfer fee
  • Excellent credit is required to qualify for 0% APR
  • The intro APR expires in 12-18 months

See also: How to Do a Balance Transfer on a Credit Card

2. Low-Interest Debt Consolidation Loan

Another option is to pay off your various credit cards with a single debt consolidation loan. This is an unsecured personal loan allows you to pay off your credit cards and save money with a lower interest rate.

You can then put the extra savings toward additional debt repayments. You can apply for debt consolidation loans through financial institutions such as a bank, credit union, or online lender.

Or you can spread your repayment term over several years, which will make it easier to manage your monthly payments. You’ll pay interest for a longer time frame. But if you can get a low rate and avoid going into default, the longer term might be an advantage for you.


  • Low interest rate
  • Your credit score will likely improve
  • Fixed monthly payments


  • You’ll need excellent credit to qualify
  • Monthly payments will be higher than the minimum payment on credit cards
  • There’s a chance you’ll end up with more debt

3. Debt Management Plan

Debt management services are available for individuals who are struggling to keep up with high-interest credit card payments. The debt relief company will work with your creditors to reach a repayment agreement. They can negotiate to lower your interest rate so you’ll get out of debt faster.

Most debt management plans take between three and five years to complete. During your repayment period, most, if not all, of your credit cards will be closed, so you won’t have access to credit.


  • Lower your interest rate
  • Get out of debt sooner


  • Takes 3-5 years to complete
  • You won’t have any access to credit

4. Home Equity Loan or HELOC

If you’re a homeowner, using the equity in your home to pay down credit card debt could be a good way to consolidate debt. Home equity rates are typically low, so this could be a better option than carrying high-interest credit card debt.

You’ll do this by taking out either a home equity loan or a home equity line of credit (HELOC). Home equity loans operate are similar to personal loans, while HELOCs operate like credit cards.

With home equity loans, you receive a one-time lump sum of money. A HELOC is a revolving line of credit that allows you to withdraw money as you need it. Your house will be used as collateral for both types of loans.

See also: Best Home Equity Loans of 2023


  • You’ll receive a lower interest rate
  • You’ll have just one monthly payment
  • You can save money


  • It takes longer to apply for than other types of loans
  • You may have to pay closing costs
  • You put your home at risk

5. 401(k) Loan

If you have an employer-sponsored retirement account, there’s a good chance it’s a 401(k). Most plans allow users to borrow up to half of their account balance, with a limit of $50,000.

Borrowing money against your 401(k) is not advised because it could seriously damage your retirement planning. Don’t assume that it doesn’t matter just because you have 30 years or more until you reach retirement age.

However, it could be the best option if none of the other items on this list work for you. Ensure you have a comprehensive financial plan and do this responsibly so you don’t continue the debt cycle.


  • There’s no impact on your credit score
  • You’ll pay a lot less money in interest


  • You could end up paying significant penalties
  • You could damage your retirement plans

Does debt consolidation affect your credit?

How your credit is impacted depends on the way you consolidate your credit card debt. Make sure you evaluate your options so that you can find a plan that works for you.

Here is a brief overview of how each plan could affect your credit.

  • Balance transfer card: This could cause your credit score to drop temporarily because the new account lowers your overall credit age. However, after several months of making your monthly payment on time, it will be a positive account on your credit report.
  • Low-interest debt consolidation loan: You could see a bump in your credit score because installment loans are more favorable than revolving credit.
  • Debt management plan: Debt management plans can help your credit score because your creditor reports your debt as being “paid as agreed.”
  • Home equity loan or HELOC: Both are unlikely to negatively impact your credit. A HELOC is considered revolving debt but it’s not a credit card so it isn’t included in the utilization ratio on your credit card accounts.
  • 401(k) loan: This will not affect your credit score at all since you’re borrowing money from your retirement savings instead of a lender.

Are debt consolidation and debt management the same thing?

No, there is a big difference between debt consolidation and debt management. Debt management is also referred to as debt settlement, and with this strategy, you’ll keep your accounts separate.

A debt relief company will negotiate on your behalf to reduce your monthly payment and interest where they can. You won’t open any new loans or accounts, but they will reduce your monthly payment whenever possible.

People with bad credit who can’t qualify for low-interest debt consolidation loans or credit cards may benefit from debt management.

When is debt consolidation a good idea?

Depending on your circumstances, debt consolidation may or may not be right for you. Here are a few scenarios when you might consider debt consolidation:

  • Your outstanding debt (excluding your mortgage) is less than 40% of your monthly income.
  • You have a high credit score and can qualify for good rates on a balance transfer credit card or debt consolidation loan.
  • Your income is high enough to meet your monthly debt repayments.
  • You have a strategy for staying out of debt in the future.

Here is an example of when debt consolidation is a good plan. Let’s say you have three open credit cards with interest rates ranging between 19% and 25%.

If you’re able to qualify for an unsecured personal loan with an 8% interest rate, debt consolidation could be a good plan. You’re saving money on interest and can get out of debt quicker than if you continue paying on high-interest credit cards.

When is debt consolidation a bad idea?

The biggest problem with debt consolidation is that it doesn’t address the reasons why you got into debt in the first place. If you don’t change your spending habits, then consolidating credit card debt is only going to be a short-term fix.

Credit card consolidation also may not be for you if your credit score is low and you’re unable to qualify for a lower interest rate. Simplifying your monthly payments is helpful, but only if you can eliminate the amount you’re paying in interest.

Finally, you should only use a balance transfer credit card if you intend to pay it off during the introductory period. If not, you could end up in the same financial situation you’re already in.

Can debt consolidation hurt your credit score?

To understand how debt consolidation might affect your credit, let’s look at the factors that determine your credit score. Your FICO credit score is determined by the following five factors:

  • Payment History: 35%
  • Amount Owed: 30%
  • Length of Credit History: 15%
  • New Credit: 10%
  • Types of Credit Used: 10%

Your payment history and the amount you currently owe make up the majority of your FICO score. So if you’ve maxed out your credit cards or are having trouble making your payments on time, then your credit score has likely already been affected.

That being said, there are a few things you should watch out for when you’re considering debt consolidation.

Once you have a credit card consolidation plan, watch your credit score closely both during and after the process. A competent credit repair company can ensure your debt repayment plan is accurately reflected on your credit report. We recommend Lexington Law Firm as a great place to start. Read our review of them and consider giving them a call.

Hard Inquiries

A hard credit inquiry happens when you apply for a loan and are moving forward with the application process. A hard credit inquiry won’t hurt your credit long-term. However, you should expect to see a temporary dip after you’ve applied for a new loan.

Credit Utilization

Credit utilization refers to how much debt you have compared to how much credit you have available. When you’re consolidating your debt, your credit utilization ratio may temporarily go up. However, if you keep your current credit cards open and don’t close the accounts, your credit utilization should eventually go back down.

How to Prepare for Debt Consolidation

If you decide to move forward with debt consolidation, there are a few things you should do to prepare. First, you should make a list of all your monthly debts. This list should include all of your credit card debt and everything else you owe, excluding your mortgage payments.

Next, you should track down your recent billing statements and add up your total balances. Add up all your current credit card balances to figure out how much money you need to consolidate everything.

Now that you know how much you owe, you should check your credit report. This will give you a better idea of what kind of rates you can qualify for. If your credit score is low, you should take steps to improve it before applying for new credit.

And finally, you should shop around for the right lender. Look for lenders that work with borrowers in your situation. Compare the interest rates, repayment terms, fees, and any other requirements needed to submit an application.

Bottom Line

Debt consolidation isn’t a quick fix, and it won’t solve all your financial problems. It can be a good option, but you need to address the reasons why you got into so much debt in the first place.

Do-it-yourself repayment options, like the debt snowball method, could be a suitable alternative to debt consolidation.

If you’ve decided to pursue debt consolidation, review your loan options, and see what you qualify for. If you can qualify for a 0% balance transfer card or low-interest personal loan, debt consolidation may be a suitable option for you.

Jamie Johnson
Meet the author

Jamie Johnson is a freelance writer who has been featured in publications like InvestorPlace and GOBankingRates. She writes about various personal finance topics including student loans, credit cards, investing, building credit, and more.