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Ways to Consolidate Credit Card Debt

Managing credit card debt can be overwhelming, especially if you have high balances or have maxed out more than one card. Through credit card debt consolidation, you can often simplify the task of paying down debt.

Consolidation not only reduces your debt to just one payment a month, but also could potentially reduce your interest rate, saving you money over time. Here are a few options to consider if you need to consolidate credit card debt:

Consider a personal loan

Taking out a loan for credit card debt consolidation may seem counterproductive, but it actually makes a lot of sense for many people. That’s because personal loan rates are often much lower than credit card rates.
Keep in mind that there may be a limit to how much you can borrow, so you’ll want to be sure a personal loan will cover your credit card balances. Besides giving you a lower interest rate that can save hundreds of dollars (if not more) over time, using a personal loan for credit card debt consolidation provides you with one fixed payment every month. This is much easier to work into your budget. And once approved, personal loans are often free to set up.

Take advantage of home equity

The equity in your home can be used to consolidate credit card debt. Two ways you can do this are:

  • Cash-out refinance: If you have enough equity in your home, you might be able to refinance your mortgage and borrow more than you previously owed. The extra funds can then be used to pay off your credit card debt. By consolidating that debt into your monthly mortgage payment, you might also end up with a lower mortgage interest rate than you were previously paying (which is likely much lower than your credit card rates).
  • Home equity loan: You can borrow directly from the equity built up in your home. Home equity loan rates might not be quite as good as a mortgage refinance, but it's still a great way to access your own money.
As long as mortgage rates remain lower than credit card rates, consumers who have larger credit card balances can save hundreds or even thousands of dollars – even with the fees – by consolidating their debt using their home’s equity.

Explore balance transfers

Many credit cards offer low-rate balance transfers, allowing you to move debt from one card to another at a better rate – sometimes as low as zero percent for a short period of time. This can work well, but you need to carefully decide if a balance transfer is best for you. Here are some things to consider:

  • The promotional interest rate is likely temporary – typically six months to two years. After the promotional period ends, you’ll be charged interest on the remaining balance of your transferred debt at a much higher rate.
  • The better interest rate usually comes with a cost. Some balance transfer offers charge a fee for the transfer up front, so you might not save as much as you had hoped.
  • Any new charges you put on the card after the transfer is at the card’s normal interest rate, which could be higher than you expected.
If you already carry the card offering the balance transfer, read the fine print and do the math before deciding. If you aren’t sure, call your bank or credit union to ask questions about the offer.

Other options

You may hear about debt settlement companies that will negotiate a lower balance with your credit card issuers and save you money in the long run. In reality, many of these debt settlement companies charge hefty fees. If you go this route, be sure to partner with a non-profit like BALANCE that serves your best interest and doesn’t charge fees.

Whichever way you decide to consolidate your debt, 1st United can help you make it happen. We also have plenty of tools to help you figure out payments, interest, and budgeting, and resources to help you with your financial health.

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