6 ways to consolidate credit card debt

If you’re struggling to stay on top of multiple credit card payments, consolidating your debt could help. Consolidation has the potential to simplify your finances by combining all of your credit card payments into one. And, if you can consolidate your debt with a lower-interest-rate loan, you could end up saving money.

You can use a balance transfer card or a personal loan to consolidate your debt, among other options. But which is right for you depends on your credit score, income, and repayment priorities. 

1. Personal loan

A personal loan is a type of installment loan you can use for almost any purpose, including debt consolidation. Personal loans are typically unsecured, meaning you don’t have to put up collateral to qualify. A secured loan requires collateral, such as your house or car, to secure the loan. But doing so puts you at risk of losing your collateral should you default.

With an unsecured loan, you receive a lump sum upfront, then repay the amount in monthly installments. Loan amounts range from as low as $600 up to $200,000, depending on the lender and your qualifications, with repayment terms between one and seven years. A shorter repayment term generally means a higher monthly payment, but you could save on interest. If you want a lower monthly payment, you can consider a longer term, but you’ll likely pay more in interest.

While APRs on unsecured personal loans generally run higher compared to secured loans, they tend to be much lower than credit card rates. The average rate for a 24-month personal loan as of November 2023 was 12.35%, according to the Federal Reserve, which is 10 percentage points less than the average credit card rate of 22.75%. If you can save money on interest — taking loan fees into account — a personal loan could be a good way to consolidate credit card debt.

To qualify for the best personal loan rates, you generally need good credit (a FICO score of 670 or above), consistent income, and a debt-to-income ratio — your monthly debt payments divided by your gross monthly income, expressed as a percentage — of around 35% or less. If you have bad credit, you may be able to qualify for some personal loans, but you'll likely pay higher rates.

You can find personal loans at banks, credit unions, or online lenders. Compare different lenders based on APR, loan amounts, repayment terms, and eligibility requirements.

2. Balance transfer credit card

A balance transfer credit card lets you consolidate all your credit card balances onto a single credit card, typically with a low or 0% introductory rate. When the introductory rate expires — after around 12 to 21 months, depending on the card — the card assumes the standard APR.

Balance transfer credit cards generally charge a fee for the initial balance transfer. Usually, it’s a percentage of the total transfer amount, often around 3% to 5%.

Using a balance transfer credit card can be a smart strategy if you’re able to pay off the balance within the introductory period and your interest savings outweigh the balance transfer fee. Check your current cards for balance transfer offers, or see if you can prequalify for a new 0% APR balance transfer credit card.

3. Home equity loan or HELOC

Home equity loans and home equity lines of credit (HELOCs) are both secured loans that allow you to borrow against your home’s equity.

A home equity loan is a type of installment loan. After receiving your loan amount upfront, you make monthly payments based on your loan amount, APR, and repayment term until you pay off the loan.

A HELOC, on the other hand, works like a credit card. They have variable interest rates, which means your rate could change based on market conditions. During your draw period, you can borrow up to your credit limit on a revolving basis.

When the repayment period starts, you can no longer draw on your line of credit, and you have to pay off your balance. A draw period often lasts 10 years, depending on the lender, with a 20-year repayment period.

Because home equity loans and HELOCs are secured by your home, they’re often a lower-cost way to consolidate credit card debt. But they come with drawbacks. Both have closing costs, much like a mortgage. You also need a certain amount of home equity to qualify, and you risk losing your house if you default on the loan.

4. Debt management plan

A debt management plan can help you organize your credit card payments and get on track to pay off your balances. To enroll in a debt management plan, you typically have to work with a credit counselor at a nonprofit credit counseling agency.

A credit counselor can reduce your monthly payments by negotiating lower interest rates or a longer repayment period. They organize your plan so you make a single monthly payment to the agency, and the agency pays your creditors. You may have to pay a small fee for this service, and the plan might require you to close your cards.

A debt management plan is best for those who can’t qualify for a low-interest credit card consolidation loan on their own. Otherwise, you may be able to save money and keep your accounts open by using a debt consolidation loan.

The U.S. Department of Justice has an approved list of nonprofit credit counseling agencies, and you can also find a credit counselor from the National Foundation for Credit Counseling or the Financial Counseling Association of America.

5. Cash-out auto refinance

A cash-out auto refinance involves replacing your current auto loan with a new one for an amount that’s greater than what you currently owe. You receive the difference in cash, which you can use to pay off your credit card debt.

For example, if you have $20,000 of equity in your vehicle, but still owe $10,000, you could refinance with a new loan of $30,000 and a cash value of $20,000.

Like a personal loan, a cash-out auto refinance could save you money if you can get a low enough interest rate. But don’t forget about loan fees when weighing your options.

Unlike a personal loan, a cash-out auto refinance is secured by an asset. If you can’t keep up with your payments, you risk losing your car. And keep in mind, a cash-out auto refinance makes it more likely you could go upside down on your auto loan — meaning you owe more than your car is worth.

Not all lenders allow cash-out auto refinances, so you’ll have to do some digging to find those that do.

6. 401(k) loan

A 401(k) loan lets you borrow money from your 401(k) retirement plan, which you can use to consolidate your credit card debt. Other types of employer-sponsored retirement accounts, like 403(b), 457(b), and profit-sharing plans, may also offer loans, but the availability of these loans depends on your individual plan.

The most you can borrow with a retirement loan is $50,000, but it also depends on your vested account balance. Unless you leave your job, you have five years to pay off the loan.

Borrowing from your retirement account to consolidate credit card debt has its benefits. For example, you don’t need to meet any credit score requirements to access loan funds. Plus, any interest you pay goes back into your account.

But there are significant risks, too. If you don’t repay the loan, you may face taxes and withdrawal penalties. You may even have to repay the loan in full if you end up leaving your job. Not to mention, borrowing from your retirement account means you’re missing out on potential market growth.

How to choose the best credit card consolidation method

When considering ways to consolidate your debt, consider things like rates, repayment terms, loan amounts, funding times, and fees. These factors vary by method and should impact how you choose to consolidate debt.

Credit card consolidation FAQ

Which method do I choose?

It depends on your situation. Start by checking your credit score and assessing your finances, which may limit your options. From there, weigh the risks and benefits of each method.

For example, if you have great credit and can qualify for a low-interest home equity loan, that could be a good choice. But if you’re uncomfortable with a secured loan, and don’t want to risk losing your collateral, a personal loan could be a better option.

Does credit card consolidation hurt your credit?

Depending on the route you take, credit card consolidation can hurt your credit, but the initial impact is generally temporary. When you apply for a loan, the lender will perform a hard credit check, which lowers your credit score slightly for about a year. Falling behind on payments, whether on credit cards or a consolidation loan, can have a much more severe impact on your score. 

Will I lose my credit cards if I consolidate my debt?

Generally, you won’t lose your credit cards if you consolidate debt. In fact, keeping old credit card accounts open can have a positive impact on your credit score — as long as you aren’t tempted to rack up more debt. However, if you use a debt management plan, a credit counselor may require you to close your credit card accounts.

Can I consolidate my credit card debt if I have bad credit?

You can consolidate your credit card debt if you have bad credit, but you may not have as many options. For instance, a lower credit score can make it harder to qualify for a low-interest personal loan or balance transfer credit card. Applying for a secured loan, like a home equity loan, may be easier with bad credit, but you risk losing your collateral if you can’t make the payments. If you’re struggling to qualify for any type of debt consolidation loan, a debt management plan may be your best bet.