Ways to Consolidate Credit Card Debt

Counterintuitive though it may seem, one of the best ways to eliminate debt is taking on more debt — strategically of course. Consolidating credit card debt can make it easier to pay off, as well as less expensive. It can also shorten the time frame you’ll need to do so. 

However, you do have to make sure the approach you choose is one you can execute according to the terms of the agreement you’ll sign. This makes having an understanding of the ways to consolidate credit card debt critical to coming out ahead. 

What is Credit Card Debt Consolidation?

The act of combining multiple outstanding credit card balances into a single loan or payment plan is called credit card debt consolidation. Advantages can include a lower monthly payment, a shorter payoff period and smaller interest payments. The four most often employed approaches include taking on a balance transfer credit card, getting a personal loan, accessing your home equity and entering a debt management program.

Balance Transfer Cards

Perhaps the method with which most people are somewhat acquainted, these offers are quite prevalent. Basically, you’ll shift the balances of all of your existing credit cards to a new card with a much higher limit and a better interest rate. This better interest rate can often be a zero percent APR offer for a period of 12 to 21 months. 

This can be a real advantage, as long as you pay off the transferred balance before the introductory period ends. Otherwise, you could find yourself facing an even higher overall interest rate. What’s more, this can applied to the entire transferred balance going all the way back to the time you signed the deal. 

Personal Loans

The main benefits here are a longer repayment window and a lower interest rate — assuming you have a good to excellent credit score. People with soft credit ratings will seldom come out ahead using a personal loan for credit card consolidation. They’ll often have to pay more interest over the term of the loan than if they’d left things status quo. 

Many online lenders offer the opportunity to see if you pre-qualify for a personal loan so you can see if it will work in your favor. This can be done with only minimal effect on your credit score and can be worthwhile. 

Home Equity 

Under this approach, you can take out a straight home equity loan, in which you refinance the property, cash out and use the proceeds to pay off your cards. Or, you can go with a home equity line of credit and pay off your balances, leaving as much of your equity intact as possible. 

Either of these reputable credit card debt consolidation strategies will net better interest rates than personal loans. However, you can be forced to sell your home to pay off the lender if you have to default on one of those deals.

Debt Management

This approach hands your obligations over to a credit counselor who will work with your card issuers to try to lower your interest rates and get fees forgiven, in order to make paying them off easier. This can be a smart play as you won’t risk your home, nor will you need a high credit score to qualify. 

However, you will be required to close some credit accounts, which could adversely affect your credit score. You’ll also surrender control of your finances to a third party. This requires a strong degree of trust, so you have to be careful to avoid scam artists.

Be apprised each of these methods entail a degree of risk, as well as associated fees. Still though, these four ways to consolidate credit card debt can bring you out ahead of the game —if you’re thoughtful and careful in terms of your approach.