Credit Card Consolidation
Consolidating your credit cards to simplify and speed up debt repayment.
If you have a love-hate relationship with your credit cards, you’re not alone. Credit cards can be invaluable resources that make it easier to tracking spending and pay for purchases without a need for cash. The other side of that is that high-interest revolving balances can be tough to manage – especially if you overcharged and are trying to pay off big balances that never seem to go down even though you make your payments month after month.
The information below is designed to help you understand how credit card consolidation works to help you find relief from credit card debt. If you have questions or want to know which consolidation option is right for you, we can help. Call Consolidated Credit today at or complete an online application to request a free debt and budget analysis from a certified credit counselor.
When traditional payment methods don’t work
In normal circumstances, credit cards are paid on a revolving payment schedule. That means the amount you are expected to pay varies based on how much you owe in total. Interest is applied to any balance that carries over at the end of a billing cycle and the interest rate is generally pretty high compared to loans a your mortgage or auto loan.
When your balances are low, the debt is usually easy to manage and if you pay off your balances in-full every month then you minimize finance charges. However, as your balances increase the debt can get harder and harder to eliminate with traditional payment means. That’s because once you have high balances that carry over from month to month, the high interest charges applied each month often eaten up most of the payment you make.
As a result, even though you make payments month after month your balances never seem to go down. Even if you’re paying more than the required amount, you may not be able to pay off your debt efficiently and it can feel like you’re just throwing money away on interest charges without making any actual headway to eliminate the debt.
This is where credit card consolidation comes in handy, because it allows you to restructure your credit card debt payments in a way that makes it easier to pay back everything you owe while minimizing interest charges.
Why credit card debt consolidation works
There are two goals that you accomplish when you consolidate:
- You simplify your bill payment schedule so you’re only making one payment to eliminate your debt instead of having to juggle multiple bills
- You also reduce or eliminate the interest rate applied to you debt so that your payments go to eliminating the actual debt instead of accrued interest charges.
There are several ways to consolidate credit card debt to accomplish the above and which method you use typically depends on your specific financial situation – your credit score, your budget and the nature of your actual debts. However, once you choose how to consolidate, the benefits you get a largely the same:
- You’ll only have to make one payment each month
- More of each payment will go to paying off the debt instead of interest charges
- As a result, you can get out of debt faster even though you may pay less each month
So, for instance, instead of making 5 different payments that total over $800 a month on all of your individual credit cards with interest rates over 20%, you make one payment of $500 at an average interest rate of 5%. As a result you can get out of debt completely in less than five years rather than the few decades it might take with traditional payments.
3 options for credit card consolidation
As mentioned above, there are several ways to accomplish your goal of consolidating credit card debt.
- Credit card balance transfers allow you to move balances from high-interest credit card to a balance transfer credit card that offers 0% APR for 12-24 months. This means for one to two years, depending on what kind of card you can qualify for, all of the payments you make reduce the debt instead of paying interest charges. Just be aware that most cards charge a balance transfer fee for every balance moved; 3% is standard.
- Personal debt consolidation loans are unsecured low-interest loans that you can use to pay off your credit cards. You get a loan for an amount that will allow you to pay off your credit card balances in-full. Then you just have to pay off the loan to eliminate your debt completely. You’ll need a good credit score to qualify for a low interest rate that will provide the benefit you need. Also, never use a secured loan to consolidate credit card debt. Using something like home equity loan to pay off credit card debt puts your home at risk of foreclosure just to pay off credit cards. It’s typically not worth the risk,
- Debt management program. This type of credit card consolidation is what you can get when you go through credit counseling. The agency works out a payment plan with you and then negotiates with your creditors to reduce or eliminate the interest charges applied to your debt. People who qualify for a debt management program usually see a 30-50% reduction in their total monthly payments and interest rates are typically reduced below 10%. This is a type of credit card consolidation you can use even if you don’t have perfect credit.
10 important warnings when consolidating credit card debt
Any debt relief option that you choose is going to have its good points and its bad points. There is almost always going to be a tradeoff, so you have to decide what you can live with and what’s a deal-breaker so you can determine which solution is really right for your needs.
How to consolidate credit card debt on your own
Of the three options mentioned above, two of them are do-it-yourself. DIY consolidation is good because it means you can take care of the challenge on your own without enlisting help. It also keeps you accounts open and in good standing so you can continue to use credit – just as long as you’re using it responsibly.
Why debt consolidation fails
Even the best laid debt consolidation plans can go awry. Just because you consolidate it doesn’t automatically guarantee you’ll be successful at eliminating your debt. Here is what you need to know about why debt consolidation fails so you can avoid common pitfalls that often leave borrowers stuck.