The 5 Most Effective Ways to Consolidate Credit Card Debt

Managing credit card debt can be a daunting task. If you’re struggling to make your payments, consolidating it could be a feasible solution.

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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

Consider consolidating your multiple credit card debts into a single debt consolidation loan. This type of unsecured personal loan can help you simplify your payments, lower your interest rate, and save money in the long run. With the extra savings, you can accelerate your debt repayment progress.

You have options to apply for a debt consolidation loan through various financial institutions like banks, credit unions, or online lenders. Alternatively, opting for a longer repayment term can make monthly credit card payments more manageable, though keep in mind that you’ll end up paying more interest over a longer time period.

However, if you secure a low interest rate and stay current on your payments, a longer repayment term might be worth considering.


  • 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

If you’re finding it hard to handle the high interest payments on your credit cards, debt management services might be a suitable option. A debt relief company can work with your creditors to arrange a repayment plan, and may even negotiate a reduced interest rate, helping you to get out of debt faster.

Typically, debt management plans take three to five years to finish. During this time, it’s likely that most or all of your credit cards will be closed, restricting your access to credit. Nevertheless, the focus is on guiding you towards becoming debt-free.


  • 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 2024


  • 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 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 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?

Credit card debt consolidation may be a suitable option for you, depending on your financial situation. Consider debt consolidation in the following cases:

  • Your debt-to-income ratio (excluding mortgage) is less than 40%.
  • You have a high credit score, making you eligible for attractive rates on balance transfer credit cards or personal loans.
  • Your income can comfortably cover your monthly debt payments.
  • You have a plan in place to avoid incurring debt in the future.

For example, let’s say you have three credit cards with interest rates between 19% and 25%. If you can secure an unsecured personal loan with an interest rate of 8%, debt consolidation could be a viable solution. This would allow you to save money on interest and pay off your debt faster, compared to making minimum payments on high-interest credit cards.

When is debt consolidation a bad idea?

The main issue with credit card debt consolidation is that it fails to tackle the root cause of debt accumulation. If your spending behavior remains unchanged, consolidating credit card debt will only provide a temporary solution.

Credit card consolidation may not be the best choice if your credit score is low and you cannot secure a loan with a reduced interest rate. Although merging payments simplifies the process, it is only beneficial if you can reduce the interest amount.

Moreover, a balance transfer credit card should only be used if you plan to repay the balance in full during the introductory period. If not, you may find yourself back in the same financial predicament.

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 Credit Saint as a great place to start. Read our review of them and consider giving them a call.

Hard Inquiries

A hard credit inquiry occurs when you initiate a loan application and move forward with the approval process. Although it won’t cause long-term harm to your credit, a temporary decrease in your credit score can be expected after submitting a loan request.

Credit Utilization

Credit utilization is a measure of your debt against your available credit. During the process of debt consolidation, your credit utilization ratio may increase temporarily. However, it should return to its original level over time if you maintain your open credit card accounts and do not close them.

How to Prepare for Debt Consolidation

Before consolidating your debt, there are certain steps to take to prepare. First, create a comprehensive list of all your monthly debts, including your credit card debt but excluding your mortgage.

Then, gather recent billing statements and calculate your total balances, combining all your credit card balances to determine the amount you need to consolidate.

Next, review your credit report to determine the rates you can qualify for. If your credit score is low, work on improving it before applying for new credit.

Finally, research and compare lenders and their rates, repayment terms, fees, and application requirements to find the best option for you.

Bottom Line

Debt consolidation is not a silver bullet solution to all your financial issues. While it may prove helpful, it is essential to confront the root causes of your debt accumulation. Alternatives such as the debt snowball method, which involves taking a DIY approach to repayment, might be more fitting.

If you do opt for debt consolidation, thoroughly evaluate your loan choices and determine your eligibility. Securing a 0% balance transfer card or a low-interest personal loan may make debt consolidation a feasible 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.