How to Consolidate Credit Card Debt: The 5 Most Effective Ways

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 type of debt consolidation program you select 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.

Here are the five ways to consolidate credit card debt effectively:

  • Balance transfer deal
  • Low-interest personal loan
  • Debt management plan
  • Home equity loan or HELOC
  • 401(k) loans

1. Balance Transfer Credit Card

If you’re within striking distance of paying off the bulk of your debt, you might want to consolidate multiple credit card balances onto a single card. Many credit card companies 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 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 your debt more quickly
  • Streamline your monthly payments


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

2. Low-Interest Personal Loan

Another option is to pay off your various cards with a single debt consolidation loan. This will allow 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
  • You could end up racking up 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 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. And most, if not all of your credit cards, will be closed during your repayment period so you won’t have any 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 your debt could be a good option for you. Home equity rates are at an all-time 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). The main difference between the two is that a home equity loan is similar to a personal loan while a HELOC operates more like a credit card.

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 2020


  • 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. And don’t make the mistake of assuming that it doesn’t matter just because you have 30 years or more until you reach retirement age.

However, it could be the right option for you if none of the other items on this list work for you. Just make sure you have a good financial plan and do this responsibly so you don’t just continue the cycle of debt.


  • 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 affected depends on the way you consolidate your debt. You should evaluate your options so that you find a plan that works for you in both the short-term and the long-term.

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

  • Balance transfer card: This could cause your score to drop temporarily because the new account lowers your overall credit age.
  • Low-interest personal loan: You could see a bump in your credit score because installment loans are more favorable than revolving credit.
  • Debt management plan: Debt management can help your 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.

Is it a good idea to consolidate your debt?

If you’re feeling overwhelmed by credit card payments, it’s time to explore your debt consolidation options. No matter what avenue you choose, you need to start by ensuring that all your records in order.

Start by requesting copies of your three credit reports which you can do for free once every 12 months. Make sure the financial and personal information is accurate and up-to-date.

Even small inconsistencies affect your credit score, which could deter a lender or debt management program from working with you. It can also make it more difficult to qualify for credit cards with good interest rates and low introductory balance transfer offers.

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.

Jamie Johnson
Meet the author

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