Struggling with credit card debt?
Get your FREE quote today!

Compare Options for Credit Card Debt Consolidation

Director of Education and Corporate Communications
Financial Literacy Specialist

Credit card minimum payments are not designed to be efficient. They don’t help you pay off debt quickly and, in fact, are designed to keep you in debt as long as possible. Even when paying more than the minimum, high credit card APRs can make getting out of credit card debt an uphill battle. If traditional payments aren’t working for you, it may be time to consider credit card debt consolidation.

This guide will help you understand what debt consolidation is, how various options to consolidate debt work, and how to decide if it’s right for you. If you have questions or would like a free debt analysis to understand your options, call us at (844) 276-1544 to speak with a certified credit counselor.

What is debt consolidation?

Debt consolidation simply refers to the process of combining multiple debts into a single monthly payment. Instead of making payments to all your creditors individually, you roll all your debts into a single, simplified repayment plan. At the same time, you also work to reduce or eliminate the interest charges applied to your debt. This allows you to get out of debt faster because more of each payment you make goes to eliminating principal.

There are three basic options that consolidate credit card debt; you can find more information on each solution further down this page.

SolutionDIY or AssistedHow It Works
Credit card balance transferDIYYou transfer the balances from your existing high interest rate credit cards to one with 0% APR on transfers.
Personal debt consolidation loanDIYYou take out a loan to pay off all your credit cards, leaving only the loan to repay.
Debt management programAssistedYou set up a debt repayment plan that works for your budget with the help of a certified credit counselor.

Need help deciding which debt consolidation option will work for you? We’ve helped over 10 million people find the right solution.

What happens when you consolidate?

Three key things happen when you consolidate credit card debt:

  1. You get one monthly payment. Instead of juggling multiple bills throughout the month with different due dates, you have just one payment. It’s easier to manage your bill payments and avoid late payments that can lead to extra fees.
  2. You minimize interest. This means that more of each payment you make goes to pay off the debt instead of accrued monthly interest charges.
  3. You can get out of debt faster. Since the interest is minimized, this means you can get out of debt faster even if you’re still making the same payment each month. In fact, you may pay less each month and still get out of debt faster.

An example of what happens when you consolidate

For example, let’s say you owe $10,000 on your credit cards at an average interest rate of 18% APR. On a standard minimum payment schedule where you pay 3% of the balance each month, the starting minimum payment requirement would be $300.

If you only make minimum payments, it will take 226 payments to pay off the balance in full. That’s 18 years and 10 months before you’d be debt-free. During that time, you’d pay $9,597.78 in interest charges. In other words, you almost double the cost with added interest charges.

Let’s say you make fixed monthly payments of $300 instead of just paying the minimum. It would still take 47 payments to pay off the balance— that’s 3 years and 11 months. The total interest charges would be much lower, but at 18% APR you’d still pay $3,967.21 in interest charges.

Now let’s say that you consolidate with a 36-month loan at 10% APR. The debt would be paid off in 36 payments or exactly three years. The monthly payments would be $322.67. The total interest charges would be just $1,616.19.

If you got a 48-month loan at 10% APR, the monthly payments would be just $253.63 and the total interest charges would still only be $2,174.04. So, you’d pay off the debt in roughly the same amount of time as fixed payments, but with much lower monthly and total costs.

How debt consolidation works

Debt consolidation is more of a process than a single solution. In fact, there are a range of financial products that allow you to consolidate debt. These include:

  • Balance transfer credit cards
  • Personal debt consolidation loans
  • Debt management programs
  • Home equity loans
  • Home equity lines of credit (HELOCs)
  • Cash-out mortgage refiancing
  • 401k loans
  • Life insurance policy loans

Some of these products are better than others. For instance, in most cases you want to avoid borrowing against your 401(k) retirement plan or life insurance. Borrowing against your 401(k) can drain income you’ll need later in life and could significantly delay your retirement. Your life insurance policy is there to protect your family in case something happens to you.

Borrowing against home equity can also be risky for homeowners, as it can increase your risk of foreclosure. It’s usually not advisable to borrow against your equity solely for the purpose of paying off credit cards and other unsecured debts. You essentially convent unsecured debt to secured.

However, if you’re thinking about borrowing against your equity for other purposes, such as home renovations, you may consider using some of the funds to consolidate debt. If so, always consult with a HUD-certified housing counselor so you can understand the risks and weigh the benefits.

But for the purpose of this guide, we’ll be focusing on the three most popular and unsecured ways to consolidate debt—balance transfers, consolidation loans, and debt management programs. Here is a detailed explanation of how each of these solutions works:

Option 1: Balance transfer

This is a do-it-yourself option that requires a good to excellent credit score in order to be successful.

  1. You qualify for a balance transfer credit card based on your credit score.
  2. These cards offer 0% APR on balance transfers for a limited time after you open the account—usually between 12-18 months.
  3. The better your credit, the longer the 0% APR introductory period.
  4. Once the account is open, you transfer your existing balances. You can either call the customer service line to provide account numbers and balances over the phone or you can enter them online.
  5. You usually must pay a balance transfer fee on each balance you move; fees range from $3 to 3% of the balance moved.
  6. With your debt consolidated, you pay it off in the largest chunks possible.
  7. The goal is to eliminate your debt in-full during the interest-free period.

Learn more about balance transfers »

Option 2: Personal loan for debt consolidation

This is another do-it-yourself option for consolidation. You need good to excellent credit in order to use this solution effectively.

  1. You apply for an unsecured personal loan through your preferred lender.
  2. They evaluate your credit to determine eligibility and set your interest rate.
    1. You choose a term that offers monthly payments you can afford
    2. A shorter term means higher monthly payments, but lower total costs
  3. Longer terms mean lower monthly payments, but higher total costs because there are more months to apply interest charges.
  4. Once approved, the money gets disbursed to your creditors to pay off your balances. In some cases, the lender will deposit the money into your bank account, and you use the funds to pay off your balances. In others, the lender may disburse the money directly to your creditors.
  5. This leaves only the loan to repay.

See if a consolidation loan is right for you »

Option 3: Debt management program

This is a professionally assisted way to consolidate debt. It’s the only solution that works regardless of your credit score. So, this is the only way to consolidate if you have bad credit.

  1. You request a free debt and budget evaluation from a certified credit counselor.
  2. They evaluate your debt, credit and budget to see which solutions will work in your situation.
  3. If the DIY solutions listed above aren’t feasible, they check to see if you’re eligible for a debt management program.
  4. As long as you have the means to make a reduced monthly credit card payment, you typically qualify.
  5. If you’re eligible, you and the counselor determine a consolidated monthly payment that you can afford.
  6. Then, they call each of your creditors to negotiate. The goals are:
    1. Get your creditors to agree to have their debt included in the program
    2. Work with your creditors to reduce or eliminate interest charges and stop future penalties
  7. Once all your creditors sign off, the program starts.
  8. You make one payment to the credit counseling agency each month, which they distribute amongst your creditors every month.

Do you need help to consolidate your debt? »

This is one example of how a debt management plan helped a client consolidate credit card debt effectively:

Case Study

Joan from Henderson, NV

“I have to thank Consolidated Credit for the great customer service that I received while going through the process of debt consolidation. I was receiving up to 18 calls per day before I called. I wish that I did this years ago. ”

Where she started:
  • Total unsecured debt: $28,014.00
  • Estimated interest charges: $15,544.62
  • Time to payoff: 12 years, 1 month
  • Total monthly payments: $1,121.80
After DMP enrollment:
  • Average negotiated interest rate: 4.51%
  • Total interest charges: $4,091.41
  • Time to payoff: 4 years, 5 months
  • Total monthly payment: $611.00
Time Saved

7 years, 8 months

Monthly Savings


Interest Saved


What types of debt can you consolidate?

The types of debt that qualify for debt consolidation will depend on what financial product you use to consolidate. It may also depend on the specific credit card or loan that you use. For example, some balance transfer credit cards will only allow you to transfer credit card balances, while others may allow you to transfer a wide range of loans.

Always check terms carefully before you consolidate so you know which accounts you can include.

In general, you can consolidate most unsecured debt:

  • General-purpose credit cards
  • Store credit cards
  • Charge cards
  • In-store credit lines
  • Unsecured personal loans
  • Third-party collection accounts
  • Back child support and alimony*
  • IRS and state back taxes*

*These debts cannot be included in a debt management program.

Student loans can be iffy. You cannot include student loans in a debt management program. But even some debt consolidation loans and balance transfer cards won’t take student loans. That’s because student loan debt is unique and is even treated differently during bankruptcy.

Secured debts generally cannot be consolidated with unsecured debt. However, some debt consolidation loans and balance transfers have now started to allow auto loan consolidation. Mortgages and mortgage products like home equity loans and HELOCs cannot be consolidated.

Choosing the best option for debt consolidation

“Choosing the right option to consolidate debt is highly dependent on your financial situation,” explains Gary Herman, President of Consolidated Credit. “What works for a friend, family member, or neighbor may not necessarily work in your situation. So, you need to evaluate your financial situation carefully to choose the solution that fits your needs, credit, and budget.”

This chart compares the three debt consolidation solutions outlined above based on four key financial factors:

Recommended debt amountBalance transfer: Up to $5,000
Debt consolidation loan: $5,000-$25,000
Debt management program: Any debt amount (no minimum or maximum limit)
Credit score required to qualifyBalance transfer: Good-excellent (760+)
Debt consolidation loan: Good-excellent (760+)
Debt management program: None (credit score does not impact eligibility)
CostBalance transfer: Up to 3% of each balance transferred
Debt consolidation loan: Up to 1% of the loan amount (origination fee)
Debt management program: Monthly fee, averaging $49
Time to payoffBalance transfer: 12-18 months
Debt consolidation loan: 24-60 months
Debt management program: 36-60 months

The impact of debt consolidation on your monthly payments depends on your specific situation.

  • Balance transfers often involve increased monthly payments because you want to pay off the debt in full before the interest-free period ends.
  • Debt consolidation loan payments may be higher or lower depending on the loan term (length of the loan) that you choose.
    • A longer term will usually result in lower monthly payments but higher total interest charges.
    • A shorter term will increase the monthly payments, but reduce the total cost.
  • Debt management program payments are based on your budget. In many cases the monthly payments are lower.

Get a free debt and budget evaluation to identify the best debt consolidation option for your needs.

How does debt consolidation affect your credit?

When done correctly, debt consolidation generally has a positive effect on your credit. No matter which option you use to consolidate, it will not generate any negative notations in your credit report.

The effect of debt consolidation on your credit score and how it gets reported on your credit report varies based on which solution you use.

How balance transfers affect your credit

When you transfer your existing balances to a balance transfer credit card, you will notice the following changes in your credit report:

  • The application for the credit card will be noted as a “hard credit inquiry” on your credit report for two years
  • The balances on your existing cards will drop to zero
  • The new credit card account will be reported on your credit report
  • All payments on the consolidated debt will be noted on the new account.

The impact on your credit score on your credit score can vary, but it will affect your score in the following ways:

  • The new credit application can decrease your score by a few points initially, but the impact will diminish within six months
  • The new account may also decrease your “credit age” which measures the average length of time you’ve had your accounts open.
  • The new credit limit will decrease your “credit utilization ratio” which measures how much debt you have relative to your total available credit limit. This will be positive for your score.
  • All payments made on time will improve your payment history, which is the biggest factor used to calculate your credit score

How debt consolidation loans affect your credit

When you consolidate with a personal loan, you will notice the following changes in your credit report:

  1. The credit application will be noted as a hard credit inquiry for two years.
  2. The balances on your credit cards will be reduced to zero.
  3. The new loan will show up on your credit report.
  4. All loan payments will be noted in the payment history for that account.

Here is how a debt consolidation loan may affect your credit score:

  • The hard credit inquiry may decrease your score by a few points, but this will diminish over the next six months.
  • The new loan account may decrease your “credit age” which measures the average age of your accounts.
  • Your credit utilization ratio will be decreased significantly. While loans don’t increase your credit limit, your current balances on all the cards you consolidate will drop to zero.
  • Payments made on the loan will improve your payment history.

How a debt consolidation program affects your credit

When you consolidate with a debt consolidation (management) program, this is what you will see on your credit report:

  1. The program will not generate a hard credit inquiry. While a credit counselor will check your credit before you enroll in a debt management program, this is a “soft credit inquiry.”
  2. The program will not create a new account on your credit, because it is not a loan or credit line.
  3. Your credit card balances will not be immediately paid off.
  4. Instead, all the payments you make on a debt management program will be noted in the payment history of each account you include in the program.
  5. The balances will gradually decrease as you pay them off.

Here is how a debt management program may impact your credit score:

  • The soft credit inquiry will not affect your score at all.
  • The payments you make on time on the program will improve your payment history.
  • Gradually, your credit utilization ratio will decrease as your balances decrease.
  • However, since each credit card gets closed when it’s paid off, this will decrease your total available credit limit, which also impacts your utilization ratio.
  • What’s more, closing accounts will also decrease your credit age, which can also damage your credit.

The credit score impact of a debt consolidation program is generally positive or neutral overall. However, if your credit score is extremely high before you enroll, you could see your score decrease.

If you have a high credit score, you may want to consider do-it-yourself debt consolidation first.

Debt Consolidation in Today’s Economy

When it comes to consolidating debt during the economic downturn caused by the pandemic, there’s good news and bad news.

Do-it-yourself debt consolidation can be highly beneficial because interest rates are at historic lows. You can significantly reduce costs and save thousands by consolidating your debt.

On the other hand, lenders and creditors have tightened financing requirements. They want to protect their business against the increased risk of default, so they’re only extending credit to people with higher credit scores and lower debt-to-income ratios.

“It’s a catch 22 for many Americans,” explains Gary Herman, President of Consolidated Credit. “Debt consolidation would help them pay off their debt, simplify their bill payment calendar, and even reduce their monthly payments to improve their budget. That’s all highly beneficial, particularly during a recession.

“However,” he continues, “it’s harder to qualify for balance transfer cards and debt consolidation loans. Only people with the best credit scores and moderate amounts of debt can qualify.  What’s more, lenders are limiting loan amounts and interest-free periods on balance transfers. So there’s a challenge there as well.”

It’s important to note that these changes in the market do no effect eligibility for debt management programs. So, while you may not be able to consolidate on your own if you have a low credit score or too much debt, there’s still an option that allows you to consolidate.

Talk to a certified credit counselor to decide which debt consolidation option is right for you.