5 Strategies to Consolidate Credit Card Debt
5 Strategies to Consolidate Credit Card Debt

Sarah Tew/CNET

Credit card debt remains a disaster in slow motion for millions of Americans. In the third quarter of 2021, Americans held $800 billion in credit card debt, with about 3.2% of that pile turning into major delinquencies, according to the Federal Reserve Bank of New York. And, given the exorbitant interest rates in the credit card industry, once you’ve fallen behind on your payments, it can be hard to catch up.

If you feel like your efforts to pay off your credit card debt aren’t working, debt consolidation can combine all of your credit card balances into one monthly payment, ideally with a lower interest rate. . There are a number of consolidation strategies worth exploring and we’ll explain each one to help you identify which one is right for you.

1. Balance Transfer Card

Ideal for those with a high credit rating who can pay off their debt in 1-2 years

A balance transfer credit card consolidates your existing credit card debt onto one card with one main benefit – a low introductory interest rate. Most will offer a 0% initial APR on balance transfers for 12-24 months, allowing you to pay off your debt for longer without worrying about interest. Balance transfer cards often charge a fee for each balance transferred – usually between 3% and 5% – which can really add up when transferring large balances.


  • Lock in a 0% or low launch APR for a year or more
  • Some cards offer long introductory periods, up to 24 months

The inconvenients

  • Most cards with little or no intro APR charge a balance transfer fee between 3% and 5%
  • May lead to more debt at a higher APR if the balance is not paid off during the promotional period
  • Generally requires excellent or great credit to qualify for 0% APR

2. Debt consolidation loan

Ideal for anyone with a high debt balance

A debt consolidation loan is an unsecured personal loan that offers a lower fixed interest rate than most credit card APRs and multi-year repayment terms. This type of loan may be a better option for those who cannot qualify for a balance transfer credit card with an introductory APR of 0%. You can even prequalify for a debt consolidation loan without affecting your credit score, so you can decide if this method of debt consolidation is right for you.

Credit unions, banks and online lenders usually offer debt consolidation loans – debt consolidation loans from credit unions usually have better interest rates and more flexible loan terms than other lenders . Shopping around for debt consolidation loans can help you find the terms that are right for your personal debt situation.


  • Fixed repayment schedule
  • Longer time to repay debt
  • May be able to prequalify without affecting credit score
  • Lower interest rate than most credit cards
  • Can get a debt consolidation loan with less than perfect credit

The inconvenients

  • Must meet individual lender requirements to qualify
  • Some debt consolidation loans charge origination fees
  • Interest rates are based on your credit score

3. Home Equity Loan, Home Equity Line of Credit (HELOC) or Refinance

Ideal for owners with average to medium credit

Homeowners can use a home equity loan, home equity line of credit, or refinance to consolidate their debt. A home equity loan is a second mortgage taken out on the equity you have accumulated in your home that provides a lump sum cash payment with a fixed interest rate. A home equity line of credit, or HELOC, is also based on the equity in your home, but works more like a credit card, giving you a revolving line of credit that you can access when needed. You will only repay the amount you withdraw, plus interest, with a HELOC. And, if you have enough equity in your home, you can use cash refinance to reduce your credit card debt at a significantly lower interest rate.

A home equity loan or HELOC can help with debt consolidation, but the risks are higher – if you fail to meet either, you could lose your home to the lender. That said, it can be a good option for homeowners with equity in their home who have the discipline to responsibly repay the loan without missing a payment.


  • Generally lower interest rates than a personal loan
  • Can qualify for better terms even without good credit
  • Lower monthly payments spread over a longer repayment period

The inconvenients

  • You must have equity in your home to qualify
  • May require additional fees such as an appraisal or closing costs
  • You could lose your home if you fail to repay the loan or line of credit

4. Credit Counseling/Debt Consolidation Programs

Ideal for anyone who doesn’t qualify for most debt consolidation options

Credit counseling services can help you understand your finances and how you got into credit card debt in the first place. They also help you create a plan to pay off your debts, which may include a debt consolidation program. There are various non-profit credit counseling services, which offer their services for free or for a small fee. Credit counselors can also help you negotiate lower interest rates and fees.

With a debt consolidation program, you pay a fixed monthly fee which is divided and sent to your creditors. A debt consolidation program does not affect your credit score and may be ideal for someone who may not qualify for other consolidation methods. There are many credit counseling scams online, so be sure to check out a company before paying any money. the FTC has a good checklist to follow when interviewing credit counseling services.


  • Will not negatively impact your credit score
  • May reduce interest rates and fees
  • Fixed monthly payments
  • Available for those with less than favorable credit

The inconvenients

  • May require service and monthly fees unless working with a non-profit organization
  • It could take years to pay off the debt
  • Credit usage can be frozen during debt management

5. 401k Loan

Best as a last resort

If you have an employer-sponsored retirement plan like a 401(k), you may be able to take out a loan of up to 50% of your balance to pay off existing debt. There is no credit check and interest rates may be lower than other debt consolidation methods. A 401(k) loan typically has a five-year repayment term, but the full amount of the loan plus interest will become due if you lose or quit your job.

Although taxes are not due on a 401k loan that is repaid, if you cannot repay the loan then it may be considered taxable income, and you will have to pay taxes and early withdrawal penalties.


  • Lower interest rates
  • No effect on credit score
  • Five-year fixed repayment schedule

The inconvenients

  • May reduce your retirement income
  • Subject to taxes and penalties if you cannot refund
  • Becomes due in full in the event of separation from the employer
  • Limits the amount you can borrow


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