It’s easy to do. We’ve all gotten into trouble before. A few charges on a few credit cards can end up being a massive balance that feels hopeless. Other than making payments for what feels like forever, there are a few ways to stop the financial bleeding and get on top of your debt.
One great tool for doing that is consolidating your credit card debt. It won’t relieve you of any of your debt, but it can possibly stop the collection calls, lower your interest rate and give you a period of time—often over a year—where you pay zero interest.
What Is Credit Card Consolidation?
Credit card consolidation is simply taking all of your credit card debt and combining it into one payment or bill with a lower interest rate. Some methods, such as credit card balance transfers, give you a grace period of a year or longer without paying any interest.
Best Way to Consolidate Credit Card Debt: 0% Balance Transfer Offers
If your credit card debt isn’t too high, you should consider applying for a new credit card and transferring the balances from another card or cards to your new card. If you can get a card with a interest-free introductory offer on balance transfers, it can be the best way to consolidate credit card debt and pay off your credit cards.
You may only have a short amount of time to transfer your balances without paying a percentage of the balance as a transfer fee—often 60 days from the time you opened the account. Check the card’s terms and conditions.
Best Credit Cards for Debt Consolidation: Good or Excellent Credit
These cards have the best terms for balance transfers, which make them excellent for consolidating and paying off debt. The drawback to each of these cards? Your credit score has to be good to excellent (690 to 850) to qualify.
Citi® Diamond Preferred® Card – 21 Month Balance Transfer Offer
- 0% Intro APR on balance transfers for 21 months from date of first transfer. All transfers must be completed in first 4 months. After that the variable APR will be 14.99% - 24.99%, based on your creditworthiness
- 0% Intro APR on purchases for 12 months from date of account opening. After that the variable APR will be 14.99% - 24.99%, based on your creditworthiness
- If you transfer a balance with this offer, after your 0% Intro purchase APR expires, both new purchases and unpaid purchase balances will automatically accrue interest until all balances, including your transferred balance, are paid in full
- There is a balance transfer fee of either $5 or 5% of the amount of each transfer, whichever is greater
- No annual fee
- 3% foreign transaction fee
- + $0 liability on unauthorized purchases and Citi® Identity Theft Solutions
Discover it® Balance Transfer
- + cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate. Plus, earn unlimited 1% cash back on all other purchases - automatically.
- + Redeem cash back any amount, any time. Rewards never expire.
- + 100% U.S. based customer service.
- + Get your free Credit Scorecard with your FICO® Credit Score, number of recent inquiries and more.
- INTRO OFFER: Discover will match ALL the cash back you've earned at the end of your first year, automatically. There's no signing up. And no limit to how much is matched.
- Receive FREE Social Security number alerts-Discover will monitor thousands of risky websites when you sign up.
- No annual fee.
- Click "APPLY NOW" to see rates, rewards, FICO® Credit Score terms, Cashback Match™ details & other information.
Amex EveryDay® Credit Card
- 2x Points at Supermarkets
- 1x Points on Dining
- 1x Points on Gas
- 1x Points on All Other Purchases
- 10,000 bonus points after you spend $1,000 within the first 3 months
- 20% more points if you use your card 20 or more times in a billing period
- 2.7% of each transaction in U.S. dollar
The Amex EveryDay credit card has an introductory rate of 0% on balance transfers for 15 months along with no fees for balance transfers within the first 60 days. The interest rate is 14.49% to 25.49% after the 15 months, but that’s likely to be higher when it finally kicks in as the Federal Reserve moves interest rates higher over the next few years. For that reason, try to fully pay the balance while the rate is still 0%.
One great perk of both the Amex EveryDay and Discover it cards is that you can earn rewards while you pay off your debt. Both are cashback cards, so you’ll be getting anywhere from 1 to 5 percent back from all of your purchases. That can be a nice little boost to your debt payments.
For an even longer grace period (but no rewards), the Citi Diamond Preferred has a 21-month 0% interest rate for balance transfers with a rate of 14.49% to 25.49% after the grace period.
Best Credit Card for Debt Consolidation If You Have Average Credit
If you don’t have excellent credit, which is often prohibitive for people with a large debt load, you can still have a few options.
Chase Slate® Credit Card
- 3% foreign transaction fee
The Chase Slate card has a 15-month grace period on balance transfers and a 16.49% to 25.24% rate after that. Balance transfers are free for the first 60 days, and your credit score can be as low as 630 to qualify.
In most cases you can’t transfer balances to the same company. In other words, you can’t transfer a balance from one Chase credit card to another. Also stay away from cards with a high annual fee. That will only add to your debt.
Best Debt Consolidation Companies
If getting another credit card isn’t an option, you could apply for a personal loan. No longer is a local bank or credit union your only option. Online lenders and debt consolidation companies might give you a more competitive rate than a local bank.
Whatever the case, you shouldn’t have any trouble finding a loan with an interest rate and terms more favorable than your credit cards. Personal loans are more difficult to get than they were before the 2008 recession but don’t let that deter you from asking.
If you wrote off online lenders in the past, give them another look. Some online lenders are subsidiaries of larger banks. Popular online lender Lightstream is owned by Suntrust Bank, for example.
Debt consolidation loans for good or excellent credit:
- SoFi: Low APRs of 5 to 15 percent on loan amounts up to $100,000. Must have good or excellent credit.
- Lightstream: APRs of 5.49 to 14.24 percent on loan amounts up to $24,999. Must have good or excellent credit.
Debt consolidation loans for bad credit:
- Upgrade: APRs range from 5.96 to 35.97 percent on loans up to $50,000. Borrowers with average or bad credit may qualify.
- Lendingpoint: APRs range from 15.49 to 34.99 percent on loans up to $25,000. Borrowers with average or bad credit may qualify.
As always, be sure that the new APR you will receive will be at least as low as your current APR.
Debt Consolidation If You Have Bad Credit
If your credit is damaged and you can’t get a credit card with a good balance transfer option or a good personal loan from a debt consolidation company, there’s still hope. Below are a couple more options.
Find a Credit Counseling Agency
You should consider working with a nonprofit credit counseling organization. They can help you create a plan and direct you to debt relief programs. In many cases, they allow you to pay them a single payment or bill, which pays each of your credit cards.
Some organizations and debt relief programs can also work with your creditors to lower your interest rate, wipe out penalty fees or get you a little more time to pay off the debt. Look for accredited organizations through the National Foundation for Credit Counseling. You may have to pay a small fee for the services.
Even if you have decent credit, it can’t hurt to contact these organizations. Their whole purpose is to help people get out of debt.
Borrowing From Your Retirement Fund
If you have a 401(k), it might make sense to borrow from it and some lenders may still work with you to at least consolidate a few of your cards. You can borrow a certain amount from your 401(k) account. You can’t borrow more than $50,000 or 50 percent of your balance in most cases, but each company can set their own rules.
If you don’t know the rules behind 401(k) loans, check with your employer first and the company that holds your account next. A 401(k) loan is an actual loan. If you don’t pay it back within a certain period of time, taxes and penalties apply and you could find yourself in a worse situation than the one you were trying to solve.
You can take money from a traditional IRA or certain other retirement accounts too, but you’ll pay income taxes plus a 10 percent early withdrawal penalty if you’re below the age of 59 ½. Roth IRAs and some other retirement accounts may allow you to withdrawal contributions without paying additional taxes or penalties to pay down credit card debt.
Since you already paid taxes on your contributions, you can withdrawal from the account at any time. If you withdrawal the investment gains, the income taxes plus 10 percent penalty applies.
For Emergencies Only
Withdrawing from a retirement account to pay down debt is only for true financial emergencies. Think of it as a last resort. Regardless of how much debt you have, you need to save for retirement.
When you’re unable to work, your retirement money will be your main source of income, most likely. Using your retirement savings to pay down credit card debt is potentially six figures worth of loss over a few decades.
A Word of Warning
Beware—people with damaged credit are sometimes the target of less than reputable lenders. If it looks or sounds shady, it probably is. Read the terms and conditions of all loans carefully and read some online reviews. The interest rate may turn out to be higher than what you’re currently paying.
Also, stay away from payday loans. They may sound tempting but the APR could turn out to be triple your current rate or more. There’s a reason states tightly regulate or outlaw certain payday loans altogether.
More Questions About Credit Card Consolidation
How Does Credit Card Consolidation Affect Your Credit Score?
The problem with applying for another credit card or loan is the “hard pull” on your credit. A hard pull means that the lender pulls your credit to evaluate your worthiness. Each hard pull drops your credit score by a certain amount for a period of time.
Your credit utilization will also go up, at least for a short period of time. This will negatively affect your score until the credit agencies receive notice that you paid down the balances on your old credit cards and maybe closed those accounts.
If you’re looking to consolidate your credit cards, there’s a good chance that your balances are high, some are probably maxed out, and you may have missed some payments. All of this equals negative entries on your credit report. This isn’t necessarily the time to utilize your credit but if it helps you get out of debt faster, move forward.
When Is a Good Time for Credit Card Consolidation?
Once your balance gets too high, it’s harder to fully consolidate your credit card debt because no single credit card will offer a balance that high. Further, the larger the loan you ask for from a bank or online lender, the harder it is to qualify especially if your credit is challenged.
Credit card consolidation works best when your combined balance isn’t into the tens of thousands because you can still qualify for a loan without taking from your retirement accounts or asking family or friends for help.
What’s the Difference Between Credit Card Consolidation vs. Refinancing
Credit card refinancing is different than consolidation. Credit card refinancing is another term for a balance transfer—moving a single card balance to another card with better terms. Consolidation is combining multiple cards into one payment.
You can consolidate several card balances onto one card through balance transfers, but if you refinance, it involves simply making the terms on an existing loan better.
Depending on your credit score, it might be difficult to consolidate. In that case, refinancing from a high interest rate to a lower rate is worth considering even if it doesn’t consolidate several balances into one payment.
Should You Close Your Credit Cards?
Credit card consolidation doesn’t mean closing your credit cards. By moving the debt to one card, you create a zero-balance on the others. The card can be used again but the question is, should it?
Take time to ask yourself how you ended up with such a large debt. Sometimes it’s life events that you didn’t have control over—illness or injury, death of a loved one, or something else—but often, it’s the result of not controlling your spending. Changing habits is hard for everybody but one effective way is to remove the tool that allows you to participate in those bad habits.
By closing all of your credit cards other than one that might have the consolidated debt and maybe one other low credit limit card for emergencies, it becomes more difficult to overspend and charge up a balance. Often, people who go through the consolidation process find themselves in the same or a worse financial situation because they didn’t address the behaviors that led to the high debt load.
What if You Can’t Consolidate?
If you can’t get a consolidation loan, and you’re behind on payments, call the credit card companies and let them know what’s going on. Sometimes they’ll work with you to remove penalty fees, lower your minimum payment or make a deal that lowers your overall payoff amount. It doesn’t hurt to ask, right?
What Is the Best Debt Consolidation Option?
It depends on the problem you’re trying to solve. If you have a large balance, your options may be limited to borrowing from a bank or your retirement account, or even getting a loan from friends or family. It will be difficult to find a balance transfer credit card that will give you a five-figure credit limit.
For smaller balances, you should try to consolidate to another card that offers a 0% APR introductory offer. You’ll save a ton of cash on interest payments that can go towards paying down your total debt instead of adding to it.
Keep in mind that if you have multiple cards but can only consolidate a couple, that’s better than nothing. Anything you can do to pay less interest and get the debt collection agencies off your back is worth your time as long as the terms of the loan represent a better value.