Ways to Consolidate Debt Yourself

June 4, 2020 | by Jacob Hamilton

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As of February 2020, Americans were carrying a record-breaking $1.1 trillion in credit card debt. That was divided into average balances of about $6,200 per card, with some Americans having that much debt on four or more cards. If you're struggling with debt or trying to manage multiple accounts, credit card consolidation might be an option to consider.

What Is Credit Card Consolidation?

Credit card debt consolidation occurs when you convert two or more debts into a single debt. Here are two examples of credit card consolidation:

  • You have two credit cards with balances of $2,000 and $4,000. You get a new credit card with a lower interest rate and transfer both balances to it. Now you have a single credit card with a $6,000 balance.
  • You have three credit cards with balances of $2,000, $3,000 and $5,000. You take out a personal loan and use the funds to pay off all the credit cards. Now you have a single installment debt of $10,000.

Reasons to consolidate credit card debt range from convenience to savings. It's easier to manage a single monthly payment and account. And if you can score a lower interest rate on the consolidation financing, you might reduce the total cost of the debt, which can also help you pay it off faster.

What Is the Best Way to Consolidate My Credit Card Debt?

Credit card consolidation isn’t without its risks. One of the biggest risks is that you'll pay off existing credit cards with a new debt and then run those previous card balances back up. If you don't use some consolidation best practices and willpower, you can end up with double the debt you started with.

Consider the eight methods below for consolidating your credit cards. They're organized according to what's considered least risky to most, but all have pros and cons, so look into your options and make a decision that's right for you

  1. Credit Counseling Organization
  2. Credit counseling is an option that involves working with a third-party organization. They work with you to create a monthly budget, find ways to reduce expenses where possible and make bill payments on time. Often, you make one payment to the credit counseling organization and they send individual payments to all your creditors as agreed upon.

    Pros: A single payment, professional help and coaching for better money management habits mean there's less chance you'll run up more debt during the process.

    Cons: You might pay a fee for these services, and you have to vet providers carefully to avoid issues with scams.

  3. Balance Transfer Card
  4. If your credit is good enough, you might be able to qualify for a balance transfer card with a lower interest rate than your other cards. In some cases, balance transfer cards offer 0% introductory APR for 12 to 24 months. That means you can transfer existing balances to the new card and have months or years to pay it off without accruing interest.

    Pros: You have only one payment (as long as you don't use the previous credit cards), as well as savings on interest and a potential for paying off debt faster.

    Cons: This typically requires good credit and puts you in a position where you can use the previous credit cards and get yourself into a bigger debt hole.

  5. Credit Card Consolidation Loan
  6. A credit card consolidation loan is a personal loan you take out for the purpose of paying off your credit card debt. Usually, you receive the loan funds and must handle paying off accounts yourself.

    Pros: This option converts multiple credit card debts into a single installment loan, which often means a lower overall interest rate and lower monthly payment total.

    Cons: You have to have the willpower to use the funds to pay off your credit card debt instead of buying something else and to not use the cards again.

  7. Debt Management Plan
  8. Debt management plans are offered by credit counseling agencies and other accredited providers. They're a bit more formal than credit card counseling, which simply helps you manage your monthly payments. In these plans, the provider works with your credit card lenders to potentially reduce interest rates and come to an agreement that allows you to pay off all your debt in three to five years.

    Pros: You enter into an official plan, which can make it easier to stick to debt-reduction strategies. You also might be able to save on the total cost of your debt via lowered interest rates.

    Cons: While this doesn't impact your credit as much as bankruptcy, it does involve closing accounts and reducing your available credit, which can temporarily impact your credit score.

  9. Home Equity Loan
  10. If you have equity in your home, you might be able to leverage it to consolidate credit cards. This works the same as a personal loan option, except you get the funds from a home equity loan or line of credit.

    Pros: The secured home equity loan is likely to come with a lower interest rate than your credit cards, potentially saving you money as you pay down debt.

    Cons: You can still use those credit cards if you don't close them, and now your debt is tied to your homeownership, which can put your home at risk if you can't make payments.

  11. Retirement Account Loan
  12. If you have money socked away in a 401(k) or another qualified retirement account, you might be able to borrow against it to pay off credit card debt. These types of loans typically come with fairly low interest rates, and if you still have a ways to go before retirement years, it might make sense to handle high-interest credit card debt and pay yourself back over time.

    Pros: You get lower interest rates, and you use your own resources to fund your debt payoff.

    Cons: The amount you take out won't be accruing interest in your retirement fund, which can reduce the amount you have later.

  13. Cash-Out Loan
  14. This is another way to convert home equity into funds to pay off credit card debt. If you owe less than your home is worth, you can refinance your mortgage for a higher amount—potentially up to the total value of the home. The new funds first go toward paying off the existing mortgage. You get what's left as cash, which you could use to pay off credit card debt.

    Pros: Mortgages typically have much lower interest rates than credit card debts, which could reduce the total cost of your debt. You're already making a mortgage payment each month, so you don't have to worry about extra accounts or payments.

    Cons: You could run up the cards again and have even more debt. You also increase how much you owe on your home, and if you ever can't pay that amount, you could be at risk for foreclosure.

  15. Reach Out to a Trusted Friend or Relative
  16. If you can't get credit to consolidate your loans, you could reach out to someone you know to see if they will offer you a loan. They would give you the money to pay off your debt, and you would pay them back as agreed.

    Pros: You would likely get more flexible terms and very low interest rates. Some family members might be willing to offer you a zero-interest loan.

    Cons: Borrowing from people you know runs the risk of ruining the relationship.

Is Consolidating Credit Cards Bad for My Credit?

Consolidating debt can have an impact on your credit, but it's not necessarily bad—especially in the long term. Here are a few ways credit card consolidation can impact credit:

  • Changing your credit utilization ratio. This is how much of your open credit you’re using. If you move your balance to a new card and close your existing cards, your credit utilization ratio could be higher, which can cause your score to drop. But if you leave those cleared credit cards open without using them, you could have lower credit utilization, which can be good for your credit score.
  • Changing your credit mix. Taking out a personal loan to wipe out all your credit card debt and then closing your credit cards can limit your credit mix. It might leave you with only installment loans and no revolving credit, and that can potentially lower your score.
  • Changing your credit age. How long you've had credit impacts your score. If credit card accounts are your oldest credit entries and you close them, you could reduce the age of your credit.

As you can see, it's often best to leave credit card accounts open and simply not use them to mitigate any consolidation impact on your credit score. But if you know you struggle with managing credit card debt and might run up the balances again, it might be better to take the short-term credit score hit and close the accounts.

Credit Card Debt Relief for COVID-19

If you're struggling with credit card debt specifically because of the COVID-19 crisis, consolidation might not be your best first option. Many credit card companies are offering programs that reduce interest rates, waive late fees or put payments on hold for a few months. Contact your credit card company to find out if you can qualify for COVID-19 credit card debt relief.

And if credit card debt isn't your challenge, consider other resources, such as student loan consolidation. Taking a proactive approach to managing your debt and monitoring your credit history can help you secure financial stability in the future.


Jacob Hamilton

Jacob Hamilton

GM of CreditRepair.com

With his master's degree from the University of Phoenix, Jacob has been working as the General Manager for CreditRepair.com for 2 years. Jacob is passionate about consumer finances and doing everything he can to make credit repair accessible....

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