6 ways to consolidate credit card debt

Managing debt can be stressful, particularly if you fall behind on bills and are watching interest charges build up. If you find yourself struggling, consolidating your credit card debt could be one way to simplify and lower your payments.

Keep reading to learn a few methods to consolidate credit card debt, including some considerations for each.

What you’ll learn:

• Credit card debt consolidation might allow you to combine multiple debts into a single payment with a lower interest rate.

• Common ways to consolidate credit card debt include credit card balance transfers, personal loans, retirement plan loans, debt management plans, home equity loans (HELs) and home equity lines of credit (HELOCs).

• While credit card debt consolidation may be a helpful debt management option for some, it isn’t right for everyone.

• Credit card consolidation might be effective if it provides a lower interest rate or more affordable monthly payments for you—and if you’re able to work toward paying off the debt and avoid late payments.

A balance transfer credit card can be used to consolidate multiple balances into one credit card account. Part or all of your debt from other cards is moved to the balance transfer card. And you then make monthly payments toward the new card going forward. But you can’t usually transfer balances from the same credit card issuer. 

If you’re interested in this option, it also might be worth considering how long the introductory interest rate applies to transferred balances—and whether the rate will apply to new charges you make. Note how your rate could change over time as well. If the rate after the introductory period is higher than what you’re paying now, you’ll want to prioritize repaying the balance you transferred to avoid paying that higher interest rate.

Also keep in mind that some credit card issuers may charge a balance transfer fee that’s added to your transferred balance, which could increase what you owe in the long run.

Another option for consolidating credit card debt is a personal loan. If you’re approved for a personal loan, you could pay off or pay down your credit card debt with the funds. The money you previously used for monthly credit card payments would then go to paying off the personal loan.

Personal loans are typically unsecured loans, meaning they don’t require collateral for approval. But there may be other factors that determine whether you’re qualified.

But keep in mind that not all personal loans are the same. Some types of personal loans, like payday loans, often have higher interest rates than your credit cards may have. If the rates you’re qualified for are higher than what you’re paying on your credit cards, consolidating your debt may not be the best option.

Another type of loan that could provide funds for paying off credit card debt is a retirement plan loan. With a retirement plan loan, you’re borrowing from your savings instead of from a lender. Not every type of plan allows it, but it might be an option with the following types of retirement plans:

• 401(k) plans

• 403(b) plans 

• 457(b) deferred compensation plans

• Profit-sharing plans

In general, these loans have relatively low interest rates, and you don’t have to go through a credit check to access them. But there are several things to consider about retirement plan loans before you apply. If you fail to repay your loan on schedule and it goes into default, you may owe early withdrawal taxes and a 10% early withdrawal penalty.

The same holds true if you leave your job or file for bankruptcy. You’ll still have to pay the loan back in full and, if you can’t, you may owe early withdrawal taxes and penalties.

When you need help consolidating credit card debt, you could also consider setting up a debt management plan through credit counseling. Credit counselors are trained to understand credit card debt and teach people how to manage it. 

You can get connected to credit counselors through the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA). Both are recommended by the Consumer Financial Protection Bureau (CFPB). The CFPB has a list of questions to help you find the right counselor.

HELs are one way to pay off debts, including credit card debt, if you receive the loan in a lump sum. A HEL allows you to borrow money using your home as collateral. The amount you borrow is determined in part by how much equity you have in your home. You can estimate this number by subtracting how much you owe on your mortgage from the property’s current market value.

HELs usually have a fixed rate, which means the rate won’t change over time. But it’s worth confirming before accepting a loan. If you’re considering a HEL, it also helps to examine whether additional fees and costs could make it more expensive than your original debt. And if you can’t make your loan payments, it could put your home at risk.

HELOCs are another way to borrow money from your home’s equity to consolidate other debt, such as credit card debt. Unlike HELs, HELOCs usually have variable interest rates, which means payments could change from month to month. And unlike a lump-sum loan, HELOCs usually function like a credit card. But this type of loan can vary widely. Specifics like when and how you can borrow money and the repayment terms can be unique to your loan. 

Like HELs, HELOCs could put your home at risk if you are unable to pay. It’s wise to carefully examine and understand the details of each method before accepting one.

Here are some frequently asked questions about credit card debt consolidation:

If paying your credit card bills is a struggle, consolidating credit card debt may offer a way to help you get back on track. From balance transfer credit cards to personal loans, there are a number of credit card debt consolidation options. However, debt consolidation isn’t an option for everyone, and it may not be the best option for you. Be sure to do your research before committing to any new loan or credit card. 

But if you decide that consolidating credit card debt is the right move for your situation, a balance transfer may be a great place to start. To initiate that transfer, you’ll want to compare your options and find a credit card that meets your needs. Capital One offers several cards with low introductory rates to help you consolidate your credit card debt. See if you’re pre-approved with no risk to your credit score.

Are you new to credit or searching for your next credit card? Capital One can help:

• Check for pre-approval offers with no risk to your credit scores.

• Earn unlimited 1.5% cash back on every purchase, every day with Quicksilver or other cash back rewards cards.

• Explore credit cards you can use to build credit responsibly and earn rewards.

• Monitor your credit score with CreditWise from Capital One. It won’t hurt your credit, and it’s free for everyone.