Top Ways to Consolidate Credit Card Debt

Dealing with credit card debt can feel overwhelming especially if you’re paying high interest rates and have multiple due dates. If you’re trying to figure your way out of credit card debt, consolidating your debt may be the answer.

But how?

Today there are many ways to consolidate your credit card debt into one loan. Here are your top options and the pros and cons of each.

Balance Transfer Credit Card

If you have great credit, you might qualify for a 0% balance transfer credit card. These cards come with a 0% APR on balance transfers for a limited time. You must be able to pay the debt off in full before the rate expires or you’re right back at square one.

There are many options for a 0% APR balance transfer credit card, some that even pay rewards for your purchases. Read the fine print and know how the card works before deciding if it’s right for you.


  • You’ll have one payment each month rather than several
  • You won’t pay interest if you pay the debt off before the rate expires
  • You might earn rewards on regular purchases with the card


  • Most cards charge between 3% – 5% of the balance transfer amount in a balance transfer fee
  • Only applicable if you have great credit
  • The APR increases significantly after the introductory period

Home Equity Loan or Cash Out Refinance

If you own a home and have equity in it you could use it to pay off your debt. It’s important to understand what that means, though. When you use your home’s equity you make unsecured debt (credit card debt) secured by using your home as collateral.

To use a home equity loan or cash out refinance you’ll need at least 20% equity in your home that you can leave untouched. Most lenders allow you to borrow up to 80% of the home’s current value. You can use eligible equity to pay off your debt, leaving you with one payment to manage and usually a much lower interest rate than consumer debt offers. 


  • You have one payment each month
  • The interest rates are typically much lower on secured debt
  • Your payment might be lower because terms can be 20 – 30 years long


  • You’ll likely pay closing costs to get the loan
  • You might need good credit to qualify
  • You put your home at risk if you don’t pay your bills

Personal Loan

A personal loan is an unsecured loan that you can get from your local bank, an online bank or peer-to-peer lender. Personal loans can be used for any purpose including debt consolidation. Because they are unsecured, you don’t need collateral to get them, but they often have higher interest rates than secured loans because of the higher risk.

You’ll need good to great credit and a low debt-to-income ratio to qualify. We suggest applying with a few lenders to compare your options to make sure you get an affordable loan.


  • Most personal loans have fixed interest rates
  • You might boost your credit score with a timely payment history
  • Your interest rate will likely be lower than your credit card APRs


  • It can be hard to qualify for a personal loan from some banks
  • Online lenders especially often charge an origination fee
  • The loan term is usually short which means higher payments

401K Loan

It’s not ideal to borrow from your 401K, but if you’re in over your head in debt, it’s an option. Talk to your 401K administrator to see if your plan allows 401K loans. If they do, you’ll essentially borrow from yourself. You can use the funds how you want, and you’ll pay interest (to yourself). You can typically borrow funds from your 401K for 5 years, so make sure you can repay the amount you borrow within that time.


  • You don’t have to qualify with your credit or debt-to-income ratio
  • You pay interest to yourself rather than a bank
  • The interest rates are typically low


  • You’ll lose out on compounded earnings when you take money from your 401K
  • Not all plans offer this option
  • You can’t contribute to your 401K when you owe money

Debt Consolidation Plan

As a last resort, you can work with a licensed credit counselor to create a debt consolidation plan. When you do this, the counselor will typically negotiate settlements with your credit card companies to reduce the amount you owe.

The counselor will also work out the payment dates, so they align with your pay days. You’ll make one payment to the credit counseling company, and they’ll disburse your funds for you to each creditor. 


  • You might be able to afford to get out of debt a little easier
  • You only make one payment a month and the counselor handle the rest
  • It works for people with bad credit who are in over their head


  • The fees and interest rates for the service can be high
  • It can hurt your credit to settle your debt for less than it’s worth
  • There are a lot of credit counseling scams out there

Final Thoughts

If you have a lot of consumer credit card debt, it’s time to figure out how to manage it. Just making the minimum payments each month gets you nowhere and lets interest continually accrue.

These options can help you get control of your debt. When you consolidate credit card debt, you have one payment and can better manage your payments. You’re less likely to miss payments or to have to pick and choose between which payments you’ll make.

Look at all of your options and compare the bottom line. How much will the loans cost overall, and which is your best option? Try choosing the option that affects your credit score the least and costs the least amount of interest.

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