How to Consolidate Credit Card Debt on Your Own
Learn more about debt consolidation with no outside help required.
Let’s face it: Most people would rather solve debt problems on their own. Asking for help often feels like failure or admitting defeat. You also have to let someone look inside your financial world, and that’s not exactly comfortable. That’s why we created this guide. It explains how to consolidate credit card debt on your own without any professional help. We also help you judge if you can handle your debt problems alone and when it’s time to seek help.
If you have questions or need help comparing your options, talk to a certified credit counselor.
See Where You Stand
DIY Option 1: Consolidate credit card debt with a new credit card
It may sound a little suspect that the answer to your credit card debt problems is another credit card. However, in the right circumstances, it can be.
A balance transfer credit card allows you to move balances from your existing credit cards to a card that offers 0% APR on balance transfers. There’s usually a fee for each transfer. This allows you to consolidate credit card debt onto a single card. Then you have a period of time to pay off the balance interest-free.
How it works
- First your comparison shop for a balance transfer credit card.
- You want the longest 0% APR introductory term possible (although this is often dependent on your credit score).
- You want the lowest balance transfer fees – they usually range from $3 per transfer to 3%
- Once you find a card you like, you apply. The creditor will approve you and set terms based on your credit score.
- Then you transfer your existing high interest rate balances to this card.
- You have the introductory period to pay off your debt interest-free; 100% of every payment you make goes to eliminate the principal debt.
- The goal is to pay off your balance before the standard APR for balance transfers kicks in; that means making the largest payments possible.
Warnings when using this type of consolidation
- You need excellent credit to get the longest 0% Apr period possible.
If you only qualify for a six-month introductory period, that’s usually not enough time to eliminate your debt load. For most debt problems, you need 18-24 months.
- You only have a short timeclock to eliminate your debt interest-free.
If you still have a balance left when the introductory period ends, interest will start to apply. The rate may be higher than your previous rates, since balance transfer APR is often higher than APR for purchases.
- Transfer fees can be high
If you get a card with a 3% transfer fee and have $30,000 of debt to transfer, the fees would be $900.
- Some issuers don’t let you transfer an account you already have with them.
So, if you have a card with Creditor A and then get a balance transfer from them, they’ll happily take other issuer balances, but not their own.
DIY Option 2: Consolidate credit card debt with a personal loan
Loans tend to have much lower interest rates than credit cards. They also offer the benefit of fixed payments. So, if you have too much credit card debt, another solution is to pay it off with money from a loan. This is known as a debt consolidation loan.
How it works
- You apply for a consolidation loan through your preferred lender.
- During underwriting, the lender reviews your current balances and debt-to-income ratio to see if you qualify.
- You select a term based on the monthly payments you can afford.
- A shorter term means higher monthly payments, but lower total cost.
- A longer term means lower monthly payments, but higher total cost.
- Once the lender approves you for the loan, the funds are disbursed to your creditors to pay off each balance.
- This leaves only the low-interest loan to repay, which you do in fixed payments.
Warnings when using this type of consolidation
- You need good credit to qualify for the lowest rate possible.
Ideally, you want the rate to be around 5-7% – the lower, the better. If you can’t qualify for a rate that’s less than 10%, you should probably find a better debt solution.
- If your debt-to-income ratio is already above 41%, you won’t qualify.
All loans – from your mortgage to a persona loan – require you to qualify based on your debt-to-income ratio. If your total debt without the loan is already above 41%, the lender won’t approve you.
- If your debt-to-income ratio with the loan is above 41%, the lender will require direct disbursement.
If your DTI is below 41% without the loan, but then it would be above 41% with the loan, the lender will require that they send the funds directly to your creditors. In other words, they want to ensure your debts actually get paid off so your DTI stays in the right range.
How to avoid DIY consolidation traps
The biggest trap in debt consolidation is that you zero out your existing credit card balances. But even so, you still have the debt to repay. So, if you start making charges again too early, you can end up in a bigger bind than when you started. You’ll run up new balances while you still have the consolidated balance to pay off.
That’s what happened to Amber when she used a balance transfer to consolidate:
“I transferred the balance on one card to a lower interest rate card, but then started charging on the card that had the zero balance again,” Amber remembers. “I was only making the minimum payments, and some of my other cards had interest rates up to 30 percent.”
Amber — Have Debt, Will Travel
As Amber traveled Europe during school while living in England on an exchange program, her credit here in the U.S. started to suffer. Between student loan payments and credit card debts from her travels, she faced with serious debt problems.
Ensuring you end up with less debt, instead of more
In order to avoid making a bad debt problem worse, you need to take time once you consolidate to set a budget. The goal is to organize your income and expenses so you spend less than you earn. That way, you don’t have to rely on credit cards to cover everyday purchases.
The other thing you may need to do to avoid creating new debt too early is curb impulse buying. People get comfortable making impulse purchases on credit; you see something you want and you buy it right then. But that doesn’t work when if you need to eliminate debt. You need to learn how to break your credit habit.
Linda P. — Discovers It’s Not Hard to Live Credit-Free
If you’re like Linda, the thought of giving up your credit cards might be terrifying. But after helps to balance your budget to get you on the right financial path with lower debt payments, you may find it’s easier than you think to live without credit.
Knowing when it’s time to seek professional help
There are several reasons you may decide that you’re better off working with a professional team to consolidate debt.
- You can’t qualify for the right rates and terms on your own.
If you can’t get the right interest rate or term to provide the benefit you need, don’t force it! You should be able to comfortably afford the consolidated debt payments without struggling
- You can’t set a budget that doesn’t rely on credit.
If you can’t arrange a budget to cover all your obligations and necessary expenses, then consolidation won’t be effective. You may need professional help to achieve budget balance
- You can’t break your credit habit alone.
If you can’t stop spending on credit, you may need to force yourself to do it. For example, if you enroll in a debt management program, your accounts are frozen until you complete the program. You can’t spend, when forces you to learn better habits, and you have professionals there to help.
I would like to say Thank you for the outstanding service that you gave me. I started the program just four short years ago and in March I will be debt free. With your help in setting better plans with my creditors I was able to accomplish this. It was hard work, but it was all worth it at the end. The Consolidated credit counselors are the best; they answered all of my question(s) and helped me every step of the way.
If you try to consolidate credit card debt on your own and discover you need help, talk to a certified credit counselor to find better options.