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Money Matters

How to Consolidate Credit Card Debt

Credit card debt can be scary, especially if you have a lot of it across many different accounts. But what if there was a way to put all that debt together and lower your payments so you can manage it more easily? Credit card debt consolidation can help. We’ll go into some of the different ways you can consolidate your credit card debt and pay it off with less stress.

What Are the Benefits of Consolidating My Credit Card Debt?

Credit card debt consolidation is the act of compounding or combining multiple credit card balances into one single monthly payment. Ideally, it’ll have a lower interest rate than all the interest rates of your individual cards combined. This way, you can save money by paying less or no interest.

Consolidating your credit card debt can be beneficial when trying to pay off a large amount of debt, either all at once or over time. There are a couple different ways to go about starting to consolidate your debt. The first is taking out a personal loan to pay off the debt all at once. The second is seeking out a credit counseling company to help you plan your payment strategy.

Here’s how you can tackle these options and what next steps look like:

Step 1 (Option A): Apply for a personal loan

One way you can start to pay down your credit card debt is by taking out a personal loan. So how do you apply for a personal loan?

Review your credit score. By knowing your credit score, you’ll be able to prepare for what interest rates you’ll be offered and if you’ll need to put up collateral.

Shop around. Get prequalified with a few different lenders so you have loan options to compare.

Compare offers. You’ll want to consider interest rates, payment plans and any other incentives offered by the lenders.

Apply for the loan. Once you’ve found the best lender for your situation, go ahead and apply for the loan by filling out the application, either in person or online.

Once you have your personal loan, you can decide how you want to use it to pay down your credit card debt.

Step 1 (Option B): Seek guidance from a nonprofit credit counseling company

If getting started on your own is too intimidating, it might be a good idea to work with a nonprofit credit counselor. They can help create a debt management plan and take out a personal loan on your behalf, which you’d then pay back through the credit counseling organization.

Step 2: Try paying off all your credit cards

Whatever avenue you decide to take, use the personal loan — either the one you took out on your own or the one through the credit counseling organization — to pay off as much of your debt as possible. If you can pay it all down, great! If not, you’ll still have paid off a huge chunk and can more easily manage the interest your cards accrue every month.

Step 3: Make payments toward your personal loan

You’ll have to make payments on your personal loan to stay on the road to getting out of debt. With fewer bills to pay after consolidating your credit card debt, this step should be pretty easy.

Other Options for Consolidating Credit Card Debt

Taking out a personal loan isn’t the only way to simplify your credit card debt. Here are a couple more options you might consider when consolidating:

Credit card balance transfer

Sometimes, credit card companies and banks offer the opportunity to transfer the balance on multiple cards to one new card, which consolidates the debt under one interest rate. Often, these’ll come with a promotional APR that only lasts for a few months to a year. It could be a good opportunity to take advantage of a lower or no interest rate on your payments, but it can also affect your credit score since you’re effectively opening a new credit card when you do this.

Cash-out refinance

A cash-out refinance may be a good option for homeowners with a good credit score. This option allows you to refinance your mortgage by taking out more than you owe and using the difference to pay down your credit card debt. This option is a bit more complicated, so talk to your lender before starting this process to understand what kind of considerations you need to make.

For more information on how to get out of debt, visit our online resources or our DreamBank location in Madison, WI. At DreamBank, you can sign up for events that can help you learn better financial management strategies to lower your debt.

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