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How to Consolidate Credit Card Debt Without Hurting Your Credit

Debt consolidation simplifies the repayment process by combining multiple bills into a single payment with a lower interest rate.

credit card bils
Updated June 13, 2024
Written by Rachel Alulis
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Key takeaways

  • Debt consolidation can simplify your monthly payments and lower your interest rates, making it easier to manage credit card debt.
  • Balance transfer cards, personal loans, home equity loans, and auto loans are effective methods for consolidating card balances without hurting your score.
  • Consulting a financial advisor can help you choose the best debt consolidation for bad credit options.

Consolidate debt without hurting your credit today and take control of your financial future. American credit card debt is skyrocketing. According to TransUnion, the average balance per consumer rose to $6,295 in January 2024. The higher your balances, the harder it is to pay them off and the more overwhelming they become.

Luckily, there are ways to deal with it. Consolidation is one such strategy that, when done right, can help you get out of debt for less. It will not eliminate what you owe, but it can help you pay it off more efficiently.

Let’s go over debt consolidation and how you can use it to ease your debt burden and improve your score.

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How does credit card consolidation work?

Credit card refinancing simplifies the repayment process by combining multiple card balances into a single payment, usually at a lower interest rate. It reduces the number of payments you need to keep track of, so you are less likely to miss a bill. When done right, it will lower your interest rates, save you money, and enable you to pay off your existing debts faster.

Debt consolidation programs

Consolidated credit solutions help you get out of debt faster by combining multiple balances into a single affordable payment. Basically you use the new loan or card to pay off your balances. There are various ways to accomplish this:

0% APR balance transfer credit cards

Balance transfer cards let you refinance credit card debt by combining multiple cards into one with a low to 0% introductory APR (annual percentage rate). This significantly reduces the amount of interest you pay, making it easier to pay down your principal balance quickly.

A few things to keep in mind:

You must pay off the transferred balance before the introductory period ends (usually 15 to 21 months), or you will be charged higher interest rates.

The promotional low interest rate usually only applies to the transferred balance. Additional purchases will be subject to a higher APR.

There is usually a balance transfer fee of 3% to 5% of the amount transferred.

You must have a FICO score of 690 or higher to qualify.

You can get a balance transfer card from various financial institutions, including your local credit union.

Read more about credit cards!

Debt consolidation personal loans

A personal loan with a lower interest rate can help you pay off debt faster and save you money on interest.

A few things to keep in mind:

The loan may come with an origination fee.

To get a low APR, you will need a good to excellent FICO score.

Repayment terms can be up to seven years.

Make sure that the total interest paid over the life of the loan is less.

One key aspect of how to transfer credit card debt to a personal loan is to compare interest rates and fees from different lenders. Credit unions usually provide consolidation loans with lower interest rates and more flexible repayment terms than banks.

Has debt got you down?

Find out how debt impacts mental health and what you can do.

Home equity loans or lines of credit

A home equity loan or line of credit (HELOC) involves borrowing against the equity in your home. Since the loan is secured by your property, you will likely receive a lower interest rate than with a personal loan.

A few things to keep in mind:

You may qualify with bad credit

If you default, you risk losing your home

You need to have equity on your home

Comes with a longer repayment period

Auto loans

If you own a vehicle in full or have a low balance compared to its worth, you may be able to take out an auto loan and use that to pay off your existing debts.

A few things to keep in mind:

Lower interest rate

Risk losing the vehicle

Loan amount is capped by the vehicle’s value

Your state may require you to get full auto insurance coverage

Does debt consolidation affect your credit score?

Debt consolidation affects your credit score both positively and negatively. Initially, applying for a new loan or card can temporarily lower your score due to the hard inquiry. It will also shorten the amount of time you’ve had accounts. In the long-term, it can have a positive effect. The single monthly payment can make it easier to manage consistent, on time payments and reduce your credit utilization ratio. Both will improve your score over time.

What is credit card refinancing and how is it different from debt consolidation?

Credit card refinancing vs. debt consolidation, which should you choose? Credit card refinancing involves transferring existing card balances to a new card with a lower interest rate, often through a balance transfer offer. This helps reduce interest costs and can accelerate repayment. Debt consolidation combines multiple debts from loans or cards into a single loan with a fixed interest rate and repayment term. Refinancing is specific to credit card debt and focuses on reducing interest rates, while consolidation can include various types of debt and aims to streamline payments.

When it makes sense to consolidate your debt

Finance consolidation can be a smart move under the right circumstances. If you have multiple high-interest card balances, being able to combine these into a lower interest rate loan or card can simplify your payments and save you money. A single monthly payment reduces the risk of missed or late payments, which can harm your score and cost money.

For a balance transfer card or a consolidation loan, you will need to have a good to excellent score. If your FICO score is under 670, it will be hard to get approved for a card or loan with a low interest rate. You can still take out a home equity loan, auto loan, or potentially draw from retirement savings.

Many people turn to consolidation for collections to reduce the stress of managing several past-due bills. It can be a way to pay off old accounts.

Ready to be out of debt?

Find the best debt management plans.

Redo your budget and cut spending

Creating a realistic budget and sticking to it is essential when figuring out how to consolidate credit card debt on your own. Track your expenses and look for anything you can cut back on. Allocate all extra funds to paying off your new loan. You can even take on a second job to help pay off dues sooner. 

Does credit card debt consolidation ruin your credit?

One of the most common questions is, is debt consolidation bad for credit? The answer is that when done correctly, it should help your score more than hurt it. Consolidation can positively impact your score by reducing your utilization ratio and making it easier to manage payments. Making on time payments is the best thing you can do for your score.

Additionally, you’ve only had cards and now take out a personal loan that will diversify your accounts. Lenders like it when you have both revolving (credit cards) and installment (loans) accounts because it shows how you handle different types of borrowing responsibly.

All those things will help your score, but initially, consolidation will hurt it. Any time you apply for a new account, the lender will conduct a hard inquiry, which can temporarily drop your score by a few points. Pay your bills on time and your score will go up.

Find out more about your credit score on MoneyFor.

How to decide which form of debt consolidation is best for you

The best method for you depends on your budget, score, and what terms you qualify for.

credit card refinancing

Both balance transfer cards and personal loans with low APRs (annual percentage rates) require good to excellent ratings. If you have bad credit, you will not be able to qualify. You may be able to find a loan – especially a home equity or auto loan – with a low APR. Take a look at online lenders and credit unions that have more lenient requirements.

The next step is to review your budget. If you opt for a balance transfer card, you must pay the balance off in full before the promotional period ends. If you cannot do that, do not apply for the card.

A personal loan will likely have a longer repayment period. Make sure that you can afford the new monthly payments and that you are saving money on interest.

Pros of debt consolidation

  • Combines your existing debt into one monthly payment.
  • Lower interest rates can help you save money.
  • Consistent, on time payments can boost your credit score.
  • Provides a clear repayment timeline.

Cons of debt consolidation

  • Potential fees for loans or balance transfers.
  • Extending the repayment term can increase the total interest paid.
  • Using assets like your home or car as collateral can result in loss if you default.
  • Applying for a new loan or card can initially lower your credit score.

3 Alternatives to debt consolidation loans

If you can’t get approved for a loan or balance transfer card, there are still several viable alternatives to help you manage and reduce what you owe.

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Bankruptcy: Consequences of forgiven debt

Bankruptcy is a last resort due to its severe and long-lasting impact on your score. There are two main types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 involves liquidating your assets to pay as many dues as possible, while Chapter 13 allows you to keep your assets and make payments over a three to five-year period under a court-approved plan.

Bankruptcy can provide a fresh start, but it remains on your credit report for up to 10 years and can make it difficult to obtain loans or cards in the future.

Tired of living of owing money?

Click here to learn about debt relief programs.

Debt Management Plan: For long-term credit health

A debt management plan (DMP) is a structured program offered by credit counseling agencies. The agency negotiates with your creditors to lower interest rates and waive fees. You make a single monthly payment to the agency, which distributes the funds to your creditors.

A DMP simplifies your payments and helps pay off everything in 3 to 5 years. They do come with fees – a monthly fee and a start-up fee – and you must be able to afford monthly payments for the plan to work.

Go to the National Foundation for Credit Counseling to find an accredited agency near you.

Debt Settlement: How it affects your credit

Debt settlement is when you or a settlement company negotiates with your creditors to pay a lump sum that is less than the amount owed. This option can significantly reduce your debt, but it comes with risks. Settling for less than the full amount can negatively impact your score, and creditors may not always agree to negotiate. Additionally, you will have to pay taxes on the forgiven amount if it’s over $600 plus the company fee, which can be steep.

Despite these drawbacks, settlement can be a viable option if you’re unable to manage your payments and need a more drastic solution.

Beware of high-interest consolidation loans and scams

As with anything, there are scams.

Some lenders offer consolidation loans with higher APRs than credit cards or longer repayment terms, so you pay more in total interest. Always prequalify and compare offers to ensure you’re getting the best deal.

Deals that are too good to be true most likely are. Predatory companies may promise quick fixes or guaranteed approval, but they often charge exorbitant fees or engage in fraudulent practices. Be wary of any company that promises quick fixes, requires upfront payments, lacks transparency, or pressures you into making quick decisions.

Before you choose a lender, do your research. Read reviews and check their accreditation with organizations like the Better Business Bureau.

How much do you need to file for bankruptcy?

Find out when bankruptcy is worth it.

Frequently asked questions

1. How long does credit card consolidation stay on your credit report?

Consolidation itself does not appear as a separate entry on your credit report. However, applying for a new loan or card will result in a hard inquiry, which stays on your report for up to two years.

2. Do I have to close my credit cards if I consolidate my debt?

No, but you should stop carrying a balance on your cards. If you choose a DMP, the agency may require you to close your cards.

3. Can I still use my credit cards after debt consolidation?

Yes, but it’s important to do so responsibly. Always pay your balance in full each month to avoid accruing interest.

4. How long does it take for your credit score to improve after debt consolidation?

How long it takes for your score to improve varies, ranging from a few months to a year.

Bottom line

Debt consolidation does not get rid of what you owe, but it helps you get out of debt faster, more efficiently, and hopefully for less. If done correctly, you’ll pay a lower interest rate, simplify your monthly payments, save money, and increase your score while you’re at it.

Once you’re out of debt, be sure to stay out. Create a budget and pay your bills on time.

If you need more advice, talk to a credit counselor. They can help you establish a budget, learn good financial management, and become debt-free.

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About the author

Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

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