How to Combine Credit Card Debt

Credit card debt consolidation involves taking out a new loan or line of credit to pay off all your existing credit card accounts. You make payments only on the new account going forward, which can both simplify your life and potentially save you money on interest.

We’ll discuss the finer details of how this process works in a moment. But first, you should understand why combining credit card debt can be helpful.

While consolidating your credit card debt isn’t exactly complicated, it does take some effort – so you may be wondering why (and when) it’s worth your time. Consider consolidating your credit card debt if:

• You’re paying a lot of interest. The average APR on credit cards has nearly doubled in the last decade, jumping from 12.9% in 2013 to 22.8% in 2023.¹ If you have multiple credit cards with high revolving balances and double-digit interest rates, you could easily pay hundreds of dollars in interest per month.
• You’re missing monthly payments. Did you know that late or missed monthly payments are among the most detrimental factors for your credit score? Payment history accounts for 35% of your FICO^® score – the highest weight of any factor.^2,3 If you have multiple credit card bills each month, it can be easier to miss payments on one or two and negatively affect your credit.
• You want to pay down your debt faster. Maybe you have another financial goal in mind like homeownership, or maybe you’re just sick of that heavy feeling that comes with multiple debt payments. Either way, making a single payment each month can help fast-track your debt repayment strategy.
• Your credit score has improved. While paying a single loan or line of credit will likely save you money in interest even without a substantial improvement in your credit history, if your score has improved, you may qualify for a lower interest rate on the new loan.

Consolidating your credit cards can be a great help – potentially saving you not just money, but stress.

But how, exactly, do you do it? There are a few different ways.

1. Balance transfer credit cards

When you’re flipping through your stack of bills each month, you might wonder, “Can I combine multiple credit cards into one card?”

Yes, with a financial tool called a balance transfer credit card.

With a balance transfer credit card, your old balance (or balances) are transferred to the new card. Some credit card companies may offer a promotional 0% interest rate for a certain period of time, usually between a year or two. If you can pay off the entire amount within that promotional period, you’ll stop paying interest on the balances entirely, which can be a huge savings.

However, proceed with caution: After the promotional period is up, the regular interest rate will kick in, and could be as high as your old credit cards’. And like any other loan, if you don’t pay your credit card on time, you’ll be on the hook for late fees.

Additionally, new purchases made on the card are often excluded from the 0% interest promotion and can slow your debt repayment progress.

2. Personal loans

Rather than consolidating multiple old credit cards into one new one, you can also choose a personal loan for debt consolidation. With this approach, you’d take out a new personal loan large enough to repay all your existing credit card debt. Then, you manually pay them each off using the money from the personal loan. You then make regular monthly payments on the loan.

This approach can remove the time crunch of a balance transfer credit card, which can feel like a lot of pressure for some borrowers. Personal loans can often be written to be repaid over longer terms, often up to seven years.⁴

On the other hand, any 0% interest promotional period is highly unlikely with a personal loan. Such loans tend to have higher interest rates relative to secured loans like mortgages or car loans. Still, paying one loan is often less expensive than paying three or four interest-wise, especially if you can score a lower rate on the new loan.

3. Home equity loans

If you own your own home and have built up a decent amount of equity (i.e., if you’ve been paying your mortgage for a while), you can use your home to help pay off your debt. A home equity loan, also known as a second mortgage, allows you to use the value of your home as collateral, securing a lower interest rate on borrowed funds – which can then be used to pay off your multiple credit cards.

Putting your home on the line is risky because if you default on the loan, the bank can foreclose your house. This approach should only be considered if you’re confident in your ability to make your monthly payments and keep the roof over your head.

Like any other financial strategy, credit card debt consolidation has both pros and cons to consider. Let’s take a look at the benefits and drawbacks of combining credit card debt at a glance.

Pros

• Combining credit card debt can reduce the amount you pay in interest. With a 0% promotional balance transfer credit card, you’ll freeze your interest payments altogether, and even with a personal or home equity loan, you may pay less interest than you are on multiple cards.
• Making one monthly payment is simpler. Tracking down multiple bills (or remembering to log on to multiple online accounts) can take more time – and can even lead to missed payments.
• Consolidation can speed up your debt management journey, especially if you’re committed to avoiding further debt.
• Combining your credit cards can even improve your credit history if it makes it easier for you to make on-time payments in full each and every month and chip away at your overall balance.

Cons

• The 0% promotional periods on balance transfer credit cards are relatively short. If you can’t pay off your balance in time, you could be back on the hook for high interest rates.
• Personal loans and home equity loans can have their own upfront costs, like loan origination fees, and their own interest rates.
• You may not be able to qualify. If your credit score is poor or fair, you may have trouble successfully applying for a balance transfer credit card or a new personal loan – or you may face higher interest rates that won’t save you as much money.

As hard as it can be to get out of debt, combining or consolidating your credit card debt can make it more than a little bit easier. In fact, it might just make you feel like you stumbled upon a financial superpower.

Another financial superpower? The art of negotiation – learn how to negotiate your credit card debt.