Loans > Credit Card Consolidation

Credit Card Consolidation

Credit card consolidation can be a great tool for the debt-drowning consumer. Knowing how to do it, means paying less interest.

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Updated January 30, 2023

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Just keep swimming,” said a popular early 2000s animated fish.

And if you’re currently swimming in a sea of credit card debt, sometimes all you can do is take the advice of that forgetful blue sea creature. 🐟 

The harsh reality is you can drown in heaps of credit card debt. And the ever so generic advice to persistently push forward can get both very old and very tiring. But what if we told you there is a quicker way to get to the shore and exit the sea of credit card debt?

That expedited route is through the process of credit card consolidation, which is the process of washing multiple debts into a single debt. If you struggle with credit card debt, this may be the route for you as it is for hundreds of thousands of other people.

And if you are one in 51 million Americans who were forced to increase their credit card debt in the wake of COVID-19, then keep swimming through this article. Debt consolidation just might be the tactic you need to surface. 

What you’ll learn
  • What is Credit Card Consolidation?
  • Is Consolidation Right for Me?
  • Ways to Consolidate Debt
  • Credit Card Consolidation Examples
  • Can't Get a Consolidation Loan?
  • How Consolidation Impacts Credit Scores

What is Credit Card Consolidation? 💳

The word “consolidate” means to combine multiple parts into a single and more effective part. Debt consolidation follows this definition—it is the process of combining multiple payments into one larger and more effective payment.

When it comes to credit card consolidation, the process is like any other type of debt consolidation. You roll multiple, and typically high-interest, credit card payments into a single obligation. This is done with the intention of obtaining a lower interest rate, and to save you from the stress of keeping up with several payments.

Debt consolidation isn’t limited just to credit cards, however. You can consolidate other debts including student loans, personal unsecured loans, payday loans, medical bills, and even rent and utility bills. But, credit cards remain amongst the most popular types of consolidated debt.

Should I Consolidate My Credit Card Debt? 💭

Now for the pressing question—should you actually consider consolidating your credit card debt? Unfortunately, the answer isn’t so black or white, but instead very gray depending on your situation. 

Credit card consolidation can be a saving grace for some financially struggling folks. But, truthfully, credit card consolidation isn’t right for everyone. Here are some things to ponder over when determining if consolidation is the road for you.

The Importance of Your Credit Score 📈

First, you need to take your credit score into consideration before applying for a consolidation loan. If you have a good credit score, the chances are you will have the best consolidation options. 

If your credit hasn’t quite reached the level of “good” or “excellent,” you may want to push pause on the consolidation process.  It’s possible that a consolidation loan will cost a bad credit consumer a lot more in interest than what you’re currently paying.

Instead, focus on improving your credit score by getting caught up on any past-due payments and by establishing a solid, on-time payment history. Also, make sure to work towards lowering your total credit utilization ratio to 30% or lower. Both utilization and payment history are the major factors of your credit score, so it pays to take the time and effort to work on both. 

However, If you are already at the good credit threshold, consolidation just might be the right thing for you. According to the credit-modeling giant FICO®, a score of 670 or greater puts you into this category, thus qualifying you for the best consolidation options.

⚡️ Quick note: Need help interpreting the numbers on your credit report? Find out how you can access and understand your credit report.

Understanding the Burden of Debt ⛓️

Another thing to consider is how heavy your current debt load is. If your debt is manageable and you can afford your current payments, consolidation can be a good way to control your debt.

In this scenario, consolidation is more of a convenience as it eliminates many payments by lumping them all into one. Oh, and did we mention it can save you some money on interest costs?

On the flip side, if you are struggling to make your current payments and find yourself overwhelmed with the debt load, consolidation may not make matters any better. You sadly may have to consider other more extreme options such as filing for bankruptcy.

The type of debt you carry can also make a difference. For example, federal student loans oftentimes are automatically consolidated into one monthly payment, depending on the loan servicer. So, you can’t really reconsolidate for the purpose of lowering your interest rate. 

Unless the Government does you a solid and forgives your student loan debt, you will be stuck with your current loan options for the life of the loan. So to be honest: some types of debt have no reason to be consolidated. If you’re burdened by high-interest credit card debt or personal loan debt, however, consolidation is the way to go. 👍

What Can Your Budget Accommodate? 💲

The final thing to consider when deciding if credit card consolidation is right for you is how the new payment will fit into your budget. Start by understanding that some consolidation loans may force you into a higher monthly payment than you are used to.

For example, most credit cards require a monthly minimum payment of only 1% to 4% of the statement balance. Credit cards also aren’t amortized (the process of setting a number of payments out over time) like personal loans. 

This means that the revolving nature of the account allows you to consistently rack up more debt. But, it also means that as long as you pay your credit card minimum every month, you get the card servicer off your back.

With personal installment loans, this tends to be different. You typically have a set number of monthly payments (installments) at a set dollar amount. So in hindsight, the consolidation product you are looking at may offer a lower APR than your credit card, but may have a timeline for which you must pay the loan off.

This can cause potential problems if you aren’t used to paying a high monthly payment. It also may leave some lasting effects on your credit score if you miss a payment. 

Our advice to you: make sure you figure up your budget and where the new proposed payment fits into it before you apply. Either way, you can’t go wrong with changing up your spending habit—the pandemic has forced many Americans to do this anyways. 🤷

How to Consolidate Credit Card Debt 📝

Are you determined that credit card consolidation is right for you? That’s great—the first step is always the hardest.

Deciding to pay down your existing debt through a consolidation program is a smart move. Having no debt paves the path to financial freedom. Plus, it allows you to follow the trend of other U.S. consumers and stash some extra cash during the troubling coronavirus pandemic.

Now onto the next question: How exactly do you consolidate credit card debt? Well, here are our suggestions for the most practical ways to consolidate:

  1. Consolidate with a personal installment loan.
  2. Refinance your debt with a balance transfer credit card.
  3. Consider tapping into the equity in your home.
  4. Think about taking out a 401(k) loan.
  5. Look into debt management plans.
  6. Hire a debt settlement company.

Let’s jump into how each option works, and go over their pros and cons—so you can determine which is right for you.

Personal Consolidation Loans 📅

Perhaps the most popular way to consolidate your credit card debt is to take out a personal unsecured loan. And the popularity of this route is evident in the fact that in 2020 nearly ¼ of all U.S. adults have a personal loan.

In theory, a personal loan will provide you a lower, fixed APR and set up a set time frame for which the loan must be paid in full. This gives you a simultaneous sense of relief and a sense of light at the end of the tunnel if you ask us. 💡

You can obtain a consolidation installment loan from a credit union, bank, or online lender. There are even trusted online lenders and platforms who specialize in debt consolidation loans, giving you more options. In most cases, you can even pre-qualify for consolidation loans without affecting your credit score.


  • Fixed interest rate for a consistent monthly payment.
  • If you have good credit, you will see lower APRs than with credit cards.
  • Some lenders will directly pay off your credit cards so you don’t have to.
  • Can oftentimes pre-qualify without committing to a hard inquiry on your credit.


  • If you have bad credit, it may be challenging to get a loan with a good rate.
  • Some products have origination fees.
  • Credit unions often offer the lowest rates, but require a membership to apply.
  • Monthly payments can potentially be high.

Balance Transfers with Credit Cards 💸

Another popular method of credit card consolidation is credit card refinancing, also known as a balance transfer. This option allows you to transfer your existing balances to a newer credit card that has no interest for a promotional period, oftentimes 12 to 18 months. 

You’ll likely need good credit to utilize this option, and many card issuers also charge a one-time balance transfer fee of 3% to 5%. But, if you can manage to pay the balance down before the introductory period is over, you will more than likely see major savings on interest payments.


  • 0% APR introductory period.
  • Fewer monthly payments to keep track of if transferring multiple balances.


  • You have to have top-tier credit to qualify, typically a FICO® score of 690 or higher.
  • Most of the time there is a balance transfer fee.
  • High APR begins after the intro period.

Home Equity Lines of Credit/Loans 🏠

Are you a homeowner? If so, it’s possible you may be able to use the equity in your home to secure a line of credit or loan to consolidate your debt. Popularly known as a second mortgage, the option “tapping your equity” can be a solid option if you’re drowning in debt.

A home equity loan is typically a close-ended loan with a set interest rate. This differs from a Home Equity Line of Credit (HELOC) which is open-ended and requires interest-only payments during the draw period. 

Equity loans/LOCs usually provide a lower interest rate because they are secured with your home. Be cautious though—you can lose your home if you aren’t careful with payments.


  • Lower interest rate than with personal loans (and credit cards, of course.)
  • Credit requirements may be more lenient.
  • Long repayment period keeps payments low.


  • Must have equity in your home.
  • There can be a lot of fees associated, including paying for a home appraisal.
  • You can lose your home if you default.

401(k) Loans 💰

A forewarning: this option is the least wise of the six suggestions. To take a 401(k) loan is to use your employer-sponsored retirement account to front you some cash. Cash that you can use to consolidate your credit cards… and cash that you must pay back, mind you. 

You typically have five years (if you keep your job) to pay back your loan. But, there can be some pretty severe penalties and tax consequences if you fail to remit payment. Plus, this can significantly impact your retirement account total as you lose gains when you draw. Therefore, it’s not wise to take a loan from your 401(k)—if you can avoid it. 

Additionally, some special once in a lifetime circumstances (like the coronavirus pandemic) may also allow you to dip into your 401(k). But, use caution when exploring this avenue. Plus, many savers have been resisting the urge to clean out their 401(k) during the pandemic related hardships. And you should do the same. ⚠️


  • Lower interest rate than with personal loans (and credit cards, of course.)
  • No impact on your credit score as 401(k) loans aren’t reported to the credit bureaus.


  • A dip in your retirement fund occurs.
  • If you separate from your employment, payment is due on tax day.
  • Heavy fees, penalties, and tax implications if you can’t repay the loan.

Utilizing a Debt Management Plan for Credit Cards  📋

When it comes to credit card debt, a debt management plan helps by rolling your payments into one, at a reduced rate. Like a consolidation loan, this option exists for the credit-challenged folks who may not be able to get a loan. Creating a debt management plan usually entails seeking a non-profit credit counseling agency. 

Forming a debt management plan with a licensed credit counselor includes developing budgeting strategies and good money habits. You can meet with a counselor either online, over the phone, or in person. To find a credit counselor, you can check with your State Attorney General’s office or consult the Consumer Financial Protection Bureau

The counselors can save you money by helping negotiate payments. Typically these plans must be repaid within a set time frame and there can be some credit-damaging effects, such as the impact from closing accounts. 


  • Fixed and reduced monthly payments.
  • Reduced interest rate.
  • The opportunity to learn imperative credit and money management skills.


  • Both startup and monthly fees are very common and can be high.
  • Plans usually span multiple years, therefore it’s not a quick track to being debt-free.
  • Creditors may not agree to negotiate with agencies.
  • Closing accounts can hurt your credit utilization, thus your credit score.
  • Typically, there are debt-to-income ratio limits, meaning you can owe too much to qualify.

Hire a Debt Settlement Service  💼

In addition to a debt management plan, you can also consider hiring a debt settlement service. But, don’t confuse a management plan with settlement services, as they function differently. 

These agencies exist to help you seek debt relief by being the professional debt-wranglers. They function by negotiating with your creditors to reduce (or completely eliminate) interest charges.

Beware, however, as there are several cons and risks associated with debt management/settlement plans. It’s important to know what you are getting into before hiring a settlement service.


  • Fixed monthly payments
  • Reduced interest rate
  • If negotiations are successful, it can be beneficial.


  • Both startup and monthly fees are very common, and typically very high.
  • Plans usually span multiple years, therefore it’s not a quick track to being debt-free.
  • Creditors may not agree to negotiate with agencies.
  • A lot of settlement tactics classically involve missing payments, negatively affecting your credit and costing you money in fees.
  • The forgiven debt may be reported to the IRS as income, requiring you to pay income taxes.

Credit Card Consolidation Examples ✔️

Need a visual representation to help clear things up? We totally get it.

Let’s use a more real-world example to figure up how consolidation saves. Let’s say you have three credit cards with different rates and monthly minimums. The below chart illustrates a payoff schedule if you were only to make monthly minimums.

Credit CardBalanceAPRMonthly MinimumTotal Interest PaidTime to Payoff
A$4,00024%$160 (4%)$3775.11153 Months
B$2,50018%$100 (4%)$1373.56107 Months
C$2,00013%$80 (4%)$668.2586 Months

In the above scenario, by making only your 4% minimum payment every month you start off paying a total of $340 on the combined balance of $8,500. As you pay down the balances, since the minimums are a percentage base, the amount due will vary each month. 

But, at this current rate, you will end up paying more than $5,800 in interest making a grand total of around $14,317. The even scarier part? It will take roughly 12.75 years to eliminate the debt completely. 😱

But what happens when you consolidate? If you managed to get a personal consolidation loan for the entire $8,500 balance at a lower rate, you would pay less in interest costs, have a lower monthly payment, and reduce the debt faster. 

💡 Savings alert: At a rate of 6.5% and a 4 year (48 months) loan term, you would pay approximately $201.58 a month and approximately $1,175.70 in interest over the four-year term. This saves you over $4,600 in total interest costs and reduces the amount of time you pay on the loan by almost 9 years. And did we mention the amount of stress you will save too?

What if You Cannot Find a Good Credit Card Consolidation Loan?

It’s no doubt that getting a personal loan or completing a balance transfer is the more ideal route when it comes to credit card debt consolidation. But what if you are in a situation where you can’t qualify for a consolidation loan? Or what if the loans you can qualify for have a high APR?

While you may have other options, such as 401(k) loans and debt management/settlement plans, there can be some major drawbacks to those options. High fees, possible penalties, and strict timelines are some of those drawbacks, to name a few.

But, if you can’t get a loan or a credit card for a balance transfer, there are a few things you can do besides selling your soul to a less favorable program. Among these include asking a friend or family for help and working on that ever so important credit score.

🏆 Looking for the best lenders? Check out our report on the top low-interest loans.

Seek Help From a Friend or Family Member 🤝

If the pit of debt is too deep to get out of, consider asking someone you are close with to help dig you out. You can either ask your loved one for a loan directly or ask them to cosign a consolidation loan through a lender or bank. 

When it comes to borrowing money from a loved one, be careful. It can be tough to ask a friend for money, and the effects on your relationship can also be dire if things go south. So, if they agree to help, make sure you communicate the loan terms and repayment plan clearly. When you borrow from someone you know, it lessens the stress from dealing with a bank.

Instead of asking for the cash, you can instead ask them to cosign a loan. When your friend or family member agrees to cosign, their credit and income are taken into consideration as the basis of repayment for the loan. This makes your chances of approval go way up, especially if your cosigner has good or excellent credit.

Just remember with both options to be mindful of your loved one and appreciative of their help. Your financial problem also in a way becomes theirs if you aren’t careful, honest, and prompt with payment.

Improve Your Credit ✔️

While it might not be what you want to hear, if all else fails, work on building up your credit score. Sure, this is the longer and more drawn out way of consolidating your credit card debt, but it’s a surefire way to get yourself on track.

If you can’t qualify for a consolidation loan or a balance transfer credit card, work on lowering your credit utilization and establishing a steady payment history. These two factors alone carry the heaviest weight on your credit score, so improving them can give you a boost.

If you can manage to make multiple on-time and complete payments and avoid negative credit factors, in time your score should grow. And it’s clear many American’s have picked up on this tip considering late credit card payments are currently at an all-time low.

FICO Score Factors
Payment history and amounts owed have the highest weight on your FICO® credit score.

How to Maintain Your Credit During Consolidation 📏

During the consolidation process, it’s important to keep yourself on track. The first way to do this is to avoid venturing down the same path of destruction that initially led you to seek consolidation, to begin with. For any credit card accounts left open, make sure to use them responsibly, if at all. 

Be careful not to run up a high balance and avoid only paying minimum payments. It’s also a good idea to not take on any more unnecessary debt until you manage to successfully pay off your consolidation loan. If you had an excessive amount of credit cards, reduce that number to only a reasonable and necessary amount.

In the long run, consolidating your credit cards should help your credit. And with some patience, you can climb the credit score ladder. After all, as of the close of 2020, the average FICO® score is 711—and you can reach that level too with some dedication and hard work.

How Does Credit Card Consolidation Affect Your Credit Score? 🤔

In the long run, credit card consolidation will positively impact your credit score. This is due to the fact that consolidating multiple accounts into one will lower your credit utilization (balances owed). You will also establish a payment history and decrease your total amount of debt.

However, there can be some negative impacts to your credit upon consolidation. And while temporary, you may see a dip in your scores right out of the gate.

Firstly, new credit applications result in hard inquiries, which are one of the five tracked credit factors. Having many recent (within 2 years) hard inquiries will drop your score typically by a few points. This can look bad to lenders if you intend on pursuing other credit. But, the effects of hard inquiries do dissipate over time.

Additionally, any time you open a new credit account, you will see another temporary dip in your score. New credit accounts are considered a new risk, as the average age of your credit also takes a dive.

And finally, some consolidation programs may require you to close accounts. Closing accounts can temporarily harm your credit score as it lessens the number of active accounts on your report. Lenders love to see steady payments on many accounts…and closing accounts lowers the number of your accounts.

Managing Credit Card Debt in a COVID-19 World 😷

When times are tough, it’s likely you might find yourself saddled with more debt than normal. And as the whole world now knows, a new synonym for the word “tough” is COVID-19. 

With a shaky economy, millions unemployed, and a constant feeling of living in an unfamiliar world, it’s no shock that many Americans have turned to their credit cards for relief. Consumer credit card usage is up and most recently the experts even predict credit card fraud to increase while the pandemic persists. 

The increased reliance on credit cards may also pose a need for consolidation programs during the pandemic. And if you are personally faced with an increased amount of debt, now may be the time to consider consolidating.

If you can’t consolidate, or simply don’t want to, remember to practice establishing healthy credit-building habits. Make on-time payments and focus hard on chipping away at that debt. Oh, and if an extra stimulus check is thrown your way, that can help slightly lighten the load too.

Credit Card Consolidation FAQs

  • Is Consolidating Credit Cards Bad For Your Credit?

    Consolidating your credit card debt can have some positive credit impacts—but may also have some temporary consequences. Consolidating your credit card debt may cause a temporary dip in your score, especially if you have to close an account to consolidate. However, in the long run, knocking down your credit card debt will do wonders for your credit score.

  • What is the Best Way to Consolidate My Credit Card Debt?

    There are multiple good ways to consolidate your credit card debt, but our top two picks are personal consolidation loans and balance transfer credit cards with a 0% APR intro period. 

  • When is Debt Consolidation a Good Idea?

    Debt consolidation is a good idea whenever you have many high-interest debts, but still manageable monthly payments. Grouping payments into one is also a better way to keep up with your debt.

  • How Can I Pay Off My Credit Card Faster?

    To pay off your credit card faster, consider making more than your minimum payment every month. Consider targeting one debt at a time and restructuring your budget. Also, avoid racking up an additional balance.

  • What are the Disadvantages of Credit Card Consolidation?

    The biggest disadvantage of consolidation is the danger of digging yourself deeper into debt. Be careful to not venture down the old path that led you to decide to consolidate in the first place. Also, consolidation can be more costly with interest if your credit isn’t good. And lastly, you risk putting your retirement account or home at risk too.

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.