5 strategies to consolidate credit card debt


Sarah Tew / CNET

Credit card debt remains a slow-motion disaster for millions of Americans. Despite a sudden drop in sales last year – which can be attributed to fewer spending opportunities during the pandemic – credit card debt is a notoriously widespread problem in the United States. And, given the industry’s very high interest rates, once you’re late on payments, it can be hard to catch up.

If you feel that your efforts to pay off your credit card debt aren’t working, debt consolidation can combine all of your credit card balances into one monthly payment, ideally with a lower interest rate. There are a number of consolidation strategies worth exploring and we’ll walk you through each one to help you identify which one is right for you.

Balance transfer card

Ideal for those with a high credit score who can pay off their debt in 1-2 years

A credit card with balance transfer consolidates your existing credit card debt onto a single card with one main benefit: a low introductory interest rate. Most will offer an introductory 0% APR on balance transfers for 12-24 months, so you can pay off your debt longer without worrying about interest. Balance transfer cards often charge a fee for each balanced transfer – usually between 3% and 5% – which can really add up when transferring large balances.


  • Lock in a 0% or low introductory APR for a year or more
  • Some cards offer long introductory periods, up to 24 months

The inconvenients

  • Most cards with a low or no introductory APR charge a balance transfer fee of between 3% and 5%
  • May result in increased debt at higher APR if balance is not paid off during promotional period
  • Usually requires significant or excellent credit to qualify for 0% APR

Read more: Best Balance Transfer Cards.

Debt Consolidation Loan

Ideal for anyone with a high debt balance

A debt consolidation loan is an unsecured personal loan that offers a fixed interest rate lower than most credit card APRs and repayment terms spread over several years. This type of loan may be a better option for those who cannot qualify for a 0% introductory balance transfer credit card. You can even pre-qualify for a debt consolidation loan without affecting your credit score, so you can decide if this method of debt consolidation is right for you.

Credit unions, banks, and online lenders usually offer debt consolidation loans. Shopping around for debt consolidation loans can help you find the right terms for your personal debt situation.


  • Fixed repayment schedule
  • Longer period to repay debt
  • May be able to prequalify without affecting credit score
  • Lower interest rate than most credit cards
  • Can secure a debt consolidation loan with less than perfect credit

The inconvenients

  • Must meet individual lender requirements to be eligible
  • Some debt consolidation loans charge an origination fee
  • Interest rates are based on your credit score

Read more: Best personal loans.

Home equity loan, home equity line of credit (HELOC) or refinance

Ideal for homeowners with medium to medium credit

Homeowners can use a home equity loan, home equity line of credit, or refinance to consolidate debt. A home equity loan is a second mortgage taken out on the equity you have accumulated in your home that provides a lump sum of cash with a fixed interest rate. A Home Equity Line of Credit, or HELOC, is also based on the equity in your home, but works more like a credit card, giving you a revolving line of credit that you can access when needed. You will only repay the amount you withdraw, plus interest, with a HELOC. And, if you have enough equity in your home, you can use cash refinancing to reduce your credit card debt at a significantly lower interest rate.

A home equity loan or HELOC can help with debt consolidation, but the risks are higher – if you don’t stick to either, you could lose your home to the lender. That said, this can be a good option for homeowners with equity in their home who have the discipline to pay off the loan responsibly, without missing a payment.


  • Interest rates generally lower than those of a personal loan
  • Can benefit from better terms even without good credit
  • Lower monthly payments extended over a longer repayment period

The inconvenients

  • Must have equity in your home to qualify
  • May require additional fees like appraisal or closing costs
  • Could lose your home if you don’t pay off the loan or line of credit

Credit counseling / debt consolidation programs

Ideal for anyone who does not qualify for most debt consolidation options

Credit counseling services can help you understand your finances and how you got into debt on your credit card. They also help you create a plan to pay off your debt, which may include a debt consolidation program. There are various non-profit credit counseling services, which offer their services for free or for a small fee. Credit counselors can also help you negotiate lower interest rates and fees.

With a debt consolidation program, you pay a fixed monthly fee which is split and sent to your creditors. A debt consolidation program does not affect your credit score and may be ideal for someone who cannot qualify for other consolidation methods. There are plenty of credit counseling scams out there online, so be sure to check out a business before paying any money. the FTC has a good checklist to follow when interviewing credit counseling services.


  • Won’t have a negative impact on your credit score
  • Can reduce interest rates and fees
  • Fixed monthly payments
  • Available for those with less than favorable credit

The inconvenients

  • May require monthly service and fees, unless you work with a non-profit organization
  • Could take years to pay off the debt
  • Credit usage can be frozen during debt management

401k ready

Best of last resort

If you have an employer sponsored retirement plan like a 401 (k), you may be able to take out a loan for up to 50% of your balance to pay off existing debt. There is no credit check and the interest rates may be lower than other methods of debt consolidation. A 401 (k) loan Usually has a five-year repayment schedule, but the full loan amount plus interest will become due if you lose or quit your job.

While taxes are not due on a 401k loan that is repaid, if you cannot repay the loan then it may be considered taxable income, and you will have to pay taxes and early withdrawal penalty fees.


  • Lower interest rates
  • No effect on credit score
  • Fixed five-year repayment schedule

The inconvenients

  • Can reduce your retirement income
  • Subject to taxes and penalties if you cannot refund
  • Becomes due in full in the event of separation from the employer
  • Has limits on the amount you can borrow

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