Everything You Need to Know About Credit Card Consolidation
8 MIN READ
Published April 06, 2023 | Updated October 02, 2023
Credit card consolidation is an easy, effective strategy to pay off debt. But with so many consolidation options available, it is crucial to understand how each one of them works.
Credit cards can be an excellent resource when you have an emergency. It can also help you build credit and earn rewards like miles and cashback.
But, it is easy to get sucked into a cycle of unnecessary spending and mounting debt.
Credit card consolidation is an easy, achievable strategy to pay down your debts.
If you have multiple credit cards with high interest rates and are carrying a lot of debt across them, this guide will provide you with all the information you need to decide if this is the right option for you.
What is Credit Card Consolidation?
Credit card consolidation means rolling all your credit card accounts into a single loan.
If you have multiple credit cards, consolidating them can simplify your debt payments and lower your payments.
In 2021, the average credit card debt was $5,525. Over 18 million credit card holders were behind on their payments in 2022.
Debt relief options like consolidation can help you regain control of your finances so you can pay off your debt and start saving again.
Debt consolidation does not erase your debt. Instead, it helps you replace your high-interest debt with a lower-interest credit card consolidation loan.
Ultimately, this will help you save money overall and pay less towards interest.
How Does Credit Card Consolidation Work?
The process starts with setting up a credit card consolidation loan or plan.
Once you are approved for the consolidation loan or balance transfer credit card, the loan funds will be used to pay all your debts.
This will allow you to make a single monthly payment instead of making payments towards different credit cards. You can even set up autopay to ensure you do not miss any payments.
You’ll also have a lower rate overall to replace your high-interest debt.
Continue to make payments regularly and on time towards your new loan until you have managed to pay it off in full.
Consolidation of credit card debt is easy and straightforward. Whether you are attempting consolidation on your own, through a debt relief company, or with a credit counselor, the idea is to gather all your debts into one payment.
Is Credit Card Consolidation a Good Idea?
Credit card consolidation offers you a clear path toward a debt-free life, so it is a good idea for those who are struggling with multiple credit cards and have no clear way to pay them off.
In 2022, credit card debt was $986 billion in America. Like millions of Americans, if you find yourself overwhelmed with multiple debts, debt consolidation can help.
Consolidation of credit card debt allows you to roll all your high-interest credit card debt into a single, easy payment with a low-interest rate.
With a fixed period to pay off your debt, it offers you the structure you need to become debt-free.
Pros of Credit Card Consolidation
Debt consolidation is all about lowering your interest rate and saving money.
- You will be paying less towards interest.
- You will be able to get out of debt faster.
- You’ll only make a single payment each month.
- Your credit cards will be paid off in full.
- Your credit score will not be negatively affected if you make timely payments.
Cons of Credit Card Consolidation
While there are several obvious advantages of debt consolidation, you should also be aware of the risks associated with this option:
- There may be added costs such as annual fees, origination fees, closing costs, and balance transfer fees.
- Failing to make payments before the due date on your credit card consolidation loan can have a negative impact on your credit report.
- While it simplifies payments and makes repayment of debt easier, it will not address the underlying habits that lead to debt.
- If you haven't addressed your relationship with money and spending, you may find yourself using the same credit cards again and owing more than you did when you started, resulting in a much larger debt problem.
Things to Try Before you Consider Consolidation
If you are not yet ready for debt consolidation, you can try several other things to deal with your debt.
- Make a budget to figure out if you can cut down your spending and pay off your credit card debt.
- Get to the bottom of why you have debt in the first place. If you are spending more than what you earn, you will need to address that issue to get out of debt and stay out of it in the future.
- Try debt repayment strategies like debt avalanche or debt snowball to pay off credit card debt on your own.
- Seek credit counseling from a nonprofit or a for-profit organization. Credit counselors can advise you on how to pay off debts, make a budget, and manage your money better.
3 Best Credit Card Consolidation Options
Now that you know what debt consolidation is and how it works, it’s time to explore all the options available to you.
Personal loans for credit card consolidation are offered by credit unions and local banks. The application process can be completed online or over the phone.
Eligibility can be determined within one business day in many cases, and funds will be deposited in your bank account if you are approved.
In most cases, you will be able to avail yourself of flexible loan terms so you can set up a consistent payment schedule to help with budgeting.
Interest rates and loan amounts are determined by your credit score and the terms of the personal loans.
Most lenders use metrics such as total debts, total assets, credit score, and income to determine eligibility. If you have a good debt-to-income ratio and payment history, you may be eligible for a competitive interest rate.
There are a few drawbacks that you should be aware of, such as origination fees and difficulty accessing lower interest rates for those without good credit history or newer borrowers without an established credit profile.
Also, check with your lender to see if there are prepayment penalties.
Debt Consolidation Programs
Another great option is to enroll in a debt consolidation program offered by a debt relief company.
The company can work with your credit card issuer to help negotiate repayment terms, eliminate late fees or even reduce interest rates.
The monthly payment you’ll typically make when enrolled in the program will be less than making all the credit card payments individually.
In some programs, you may be required to close some of your credit cards. Once enrolled in the program, all your credit card balances will be rolled into a single payment with a fixed interest rate.
Credit card debt consolidation programs are suitable for those who need support overcoming repayment challenges.
A professional can work with you to come up with a debt solution that works for you. They can explore all your loan options, find loans with the lowest rates, and help you set up a loan payment that works for your budget.
0% Balance Transfer Credit Cards
Many credit card companies offer introductory 0% APR balance transfers when you open a new card with them.
The offer is available for a limited time, and you may be subject to 3% to 5% balance transfer fees. A 0% annual percentage rate is typically offered for 12-18 months.
You can transfer all your outstanding credit card balances to a 0% balance transfer credit card and then pay off the balance during the 0% APR introductory period.
The downside to this option is that you’ll only have a limited time period available to pay off the entire balance.
If you do not manage to pay off the entire balance during this period, it will start accruing interest charges.
Another downside is that you’ll usually need excellent credit to qualify for a 0% APR credit card for debt consolidation.
For some, credit card consolidation can provide the structure and predictability they need to pay off their debts in a fixed time period.
For others, debt relief programs like debt settlement or debt management plans may be more suitable.
Regardless of your financial situation or your needs, TurboDebt can help you pay off your debts, so you can start building your savings.
With our counseling, consultation, and planning services, we can help you identify the right debt relief option for your needs. Connect with us today for a free consultation.