7 ways to consolidate credit card debt

Many people dealing with debt want to know how to pay it off as fast as possible. One reason for wanting to pay off debt quickly is that the longer you hold onto it, the more your interest expenses can add up.

That’s especially true with credit card debt, which can come with high interest and fees as you carry balances over every month. We’re going to cover seven ways you can consolidate credit card debt for you to consider.

1. Leverage a 0% balance transfer credit card offer

If you have decent credit, you may be able to get a balance transfer card. Then, you can consolidate credit card debt onto a single card and pay it off before interest starts accruing again.

How it works

A balance transfer credit card comes with an introductory 0% interest offer for balance transfers. For example, a card might offer no interest on balance transfers for the first 15 months. If you transfer balances from higher-interest cards, you can then pay them off over those 15 months without interest.

For example, imagine someone has two high-interest credit cards with balances of $1,200 and $800. They’re approved for a balance transfer card with a credit limit of $3,000 and an introductory offer of 0% interest on balance transfers for 18 months. They move both existing balances, creating one new balance of $2,000. Over the next 18 months, they make payments of around $112 per month to pay off the balance, saving hundreds in interest in the process.

Potential benefits

The benefits of using balance transfer offers to consolidate credit card debt are:

• You can pay off the balance over time without accruing more interest.
• You can potentially save hundreds or even thousands in interest expenses.

If you can’t afford to pay a card balance down within a month or two, this may be an option.

Possible disadvantages

The downside is that you may create a tempting debt situation. If you’re not careful, you could run up the old credit card balances again and be stuck with twice the debt you had before. This option only works if you have the willpower to avoid double debt situations.

2. Use a debt consolidation loan

A consolidation loan lets you combine multiple debt payments into one, which may be easier to manage and pay off.

How it works

You apply to a lender for a debt consolidation loan. You add up all your credit card balances and see if you can get approved for a loan to pay them all down. When you get the funds, you pay off your credit card accounts—or in some cases, the lender sends the funds directly to the credit card company on your behalf.

Then, you have a single loan with a single monthly payment. Often, these loans come with a better interest rate than your credit card accounts, and the monthly payment may also be less than the total minimum payment on all your cards. This makes it easier to manage your debt and pay it off.

Potential benefits

It’s often easier to pay a single payment on time every month, so this can be good for your credit history. If you don’t close your credit card accounts, you could also lower your credit utilization ratio, which is a potential positive for your credit.

Possible disadvantages

You have to stay on top of your payments to get your consolidation loan paid off—otherwise, you risk hurting your credit. Plus, leaving your credit card accounts open leaves an opportunity for you to run those balances back up again, which would leave you with more debt than you started with.

3. Pay off credit card debt with a home equity loan

If you have equity in your home, you might be able to consolidate credit card debt with a home equity loan or line of credit.

How it works

You take out a loan with your home equity as security. For example, say you own $100,000 on a home worth $200,000. You may be able to get a home equity loan for $50,000 or more. You would use those funds to pay off your credit cards and then work on paying back the home equity loan or line of credit.

Potential benefits

Home equity loans are secured by the property, so they tend to come with much lower interest rates than other types of debt. This can substantially reduce the overall cost of your debt. You may also get enough out of the loan to have additional funds to invest in other needs.

Possible disadvantages

Since the loan is secured by your property, you put your home at risk if you can’t pay it back. You also risk the double debt situation that can occur if you run up your credit card balances again.

4. Try a cash-out auto refinance

Your home may not be the only thing you have with equity. If you owe less on your car than it’s worth, you may be able to use a cash-out refinance to consolidate debt.

How it works

Imagine a scenario where someone owes $5,000 on a vehicle worth $25,000. They may be able to get a cash-out refi loan for part of the total value—say, $15,000. Since they only owe $5,000, the other $10,000 would be paid to them in cash. They could then use that money to pay off credit card debt.

Potential benefits

This option has similar benefits to the home equity loan. Car loans are secured, so their interest rates tend to be lower than those of unsecured debt options. You may also find it easier to get this type of loan than a personal loan secured solely by your signature.

Possible disadvantages

Your car is at risk if you don’t pay the loan back. And, again, you may put yourself in a situation where you owe even more debt than before if you don’t manage your credit card accounts well going forward.

5. Talk to a credit counseling agency

Credit counseling agencies offer advice or services to help you consolidate debt or make a better plan for paying it off.

How it works

Some agencies can work on your behalf to negotiate payment plans with credit card companies or help you set up a debt management plan. A debt management plan would allow you to make a single payment to an agency that would then pay your bills according to a strategy meant to reduce either the time it would take to pay down your debt or how much interest you pay.

Potential benefits

Working with a professional can provide you with peace of mind and reduce some of the stress of dealing with debt.

Possible disadvantages

The credit counseling world, unfortunately, has its share of scammers. You should research options thoroughly and understand what is and isn’t possible from these types of services before you agree to work with one.

6. Borrow money from your 401(k)

If you’re holding on to retirement funds in lieu of paying off credit card debt, you might be spending more on debt interest than you’re earning.

How it works

Depending on how your retirement funds are set up, you may be able to borrow money from your own 401(k). You pay the funds back with interest, often via monthly withholdings from your paycheck. But the loan payments and interest go to your 401(k), so you’re paying yourself back.

Potential benefits

These loans tend to be fairly low-interest, and any interest you pay is going to you in the end. Paying off your credit card debt faster can help you maximize retirement contributions in the future, so you may end up with a better 401(k) situation later.

Possible disadvantages

If you leave your job, you may have to pay the entire balance back on an expedited timeline. If you default on the loan for any reason, it may be considered an early withdrawal, which can mean a 10 percent tax penalty. Depending on how close you are to retirement or your overall savings strategy, you may be putting your savings at risk.

7. Ask a loved one or friend for a loan

Sometimes, the best way to consolidate credit card debt is to ask for help from others.

How it works

Borrow the money from someone else and use it to pay off your credit card debt. Agree to interest and payment terms so you can pay back the loan.

Potential benefits

Someone who cares about you may offer you a great deal on interest or be willing to work with your budget for monthly payments.

Possible disadvantages

Getting financially involved with friends or family can hurt your relationship if you’re not careful.

Ultimately, you have to decide the best way to consolidate credit card debt for yourself. Just make sure to avoid major pitfalls, such as ending up with more debt than you started with because you ran up those balances again.

High levels of debt can make it hard to keep up with payments, and missing payments can have a negative effect on your credit. If you’re in a similar situation, you might benefit from working with Lexington Law—learn more about our services to see how we might be able to help you with your credit.

Reviewed by Sarah Raja, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Sarah Raja was born and raised in Phoenix, Arizona. In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts.

Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.

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