What do I need to know about consolidating my credit card debt? | Consumer Financial Protection Bureau (2024)

Here are different types of debt consolidation and what you need to consider before taking out a loan.

Get free support from a nonprofit credit counselor. Credit counseling organizations can advise you on how to manage your money and pay off your debts, so you can better avoid issues in the future.

Get to the bottom of why you’re in debt. It’s important to understand why you are in debt. If you have accrued a lot of debt because you’re spending more than you’re earning, a debt consolidation loan probably won’t help you get out of debt unless you reduce your spending or increase your income.

Make a budget. Figure out if you can pay off your existing debt by adjusting the way you spend for a period of time.

Try reaching out to your individual creditors to see if they will agree to lower your payments. Some creditors might be willing to accept lower minimum monthly payments, waive certain fees, reduce your interest rate, or change your monthly due date to match up better to when you get paid, to help you pay back your debt.

Types of consolidation loans

If you’re considering ways to consolidate debt, there are several different types of products that allow you to do this, but for each, there are important things to keep in mind before moving forward.

Credit card balance transfers

Many credit card companies offer zero-percent or low-interest balance transfers to invite you to consolidate your credit card debt onto one card.

What you should know:

The promotional interest rate for most balance transfers lasts for a limited time. After that, the interest rate on your new credit card may rise, increasing your payment amount. You’ll probably have to pay a “balance transfer fee.” The fee is usually a certain percentage of the amount you transfer or a fixed amount, whichever is more.

There are some risks to consider. If you use the same credit card to make new purchases, you won’t get a grace period for those purchases and you will have to pay interest until you pay the entire balance off in full, including the transferred balance.

If you’re more than 60 days late on a payment, the credit card company can increase your interest rate on all balances, including the transferred balance.

Debt consolidation loan

Banks, credit unions, and installment loan lenders may offer debt consolidation loans. These loans convert many of your debts into one loan payment, simplifying how many payments you have to make. These offers also might be for lower interest rates than what you’re currently paying.

What you should know:

Many of the low interest rates for debt consolidation loans may be “teaser rates” that only last for a certain time. After that, your lender may increase the rate you have to pay.

Although your monthly payment might be lower, it may be because you’re paying over a longer time. This could mean that you will pay a lot more overall, including fees or costs for the loan that you would not have had to pay if you continued making your other payments without consolidation.

Home equity loan

With a home equity loan, you’re borrowing against the equity in your home. When used for debt consolidation, you use the loan to pay off existing creditors first, and then you have to pay back the home equity loan.

What you should know:

Home equity loans may offer lower interest rates than other types of loans. But, using a home equity loan to consolidate credit card debt is risky. If you don’t pay back the loan, you could lose your home in foreclosure. You may also have to pay closing costs with a home equity loan. Closing costs can be hundreds or thousands of dollars.

Take note, using your equity for a loan could put you at risk for being “underwater” on your home if your home value falls. This could make it harder to sell or refinance.

If you use your home equity to consolidate your credit card debt, it may not be available in an emergency or for expenses like home renovations or repairs.

Other factors to consider before taking out a debt consolidation loan

Taking on new debt to pay off old debt may just be kicking the can down the road. Many people don’t succeed in paying off their debt by taking on more debt unless they lower their spending.

The loans you take out to consolidate your debt may end up costing you more in fees and rising interest rates than if you had just paid your previous debt payments. And, if problems with debt have affected your credit score, you probably won’t be able to get low interest rates on the balance transfer, debt consolidation loan, or home equity loan.

Warning: Beware of debt consolidation promotions that seem too good to be true. Many companies that advertise consolidation services may actually be debt settlement companies, which often charge up-front fees in return for promising to settle your debts. They may also convince you to stop paying your debts and instead transfer money into a special account. Using these services can be risky.

What do I need to know about consolidating my credit card debt? | Consumer Financial Protection Bureau (2024)


Is debt consolidation a good idea for credit card debt? ›

Debt consolidation is ideal when you are able to receive an interest rate that's lower than the rates you're paying for your current debts. Many lenders allow you to check what rate you'd be approved for without hurting your credit score so you can make sure you're okay with the terms before signing on the dotted line.

What are the 4 things debt consolidation can do? ›

Loan debt consolidation is when you take out a new loan to pay off multiple debts. Four types of debt are commonly consolidated: credit card debt, student loan debt, medical debt and high-interest personal loan debt. You may reduce the overall cost of repayment by securing better terms and interest.

What risk does debt consolidation bring? ›

You Risk Missing Payments

Missing payments on a debt consolidation loan—or any loan—can cause major damage to your credit score; it may also subject you to added fees. To avoid this, review your budget to ensure you can comfortably cover the new payment.

Is there really a debt relief program from the government? ›

Unfortunately, there is no such thing as a government-sponsored program for credit card debt relief. In fact, if you receive a solicitation that touts a government program to get you out of debt, you may want to think twice about working with that company.

What is a disadvantage of debt consolidation? ›

Your debt consolidation loan could come with more interest than you currently pay on your debts. This can happen for several reasons, including your current credit score. If it's on the lower end, lenders see you as a higher risk for default. You'll likely pay more for credit and be able to borrow less.

What is the fastest way to get out of credit card debt? ›

Strategies to help pay off credit card debt fast
  1. Review and revise your budget. ...
  2. Make more than the minimum payment each month. ...
  3. Target one debt at a time. ...
  4. Consolidate credit card debt. ...
  5. Contact your credit card provider.

Is it smart to consolidate debt? ›

Consolidating debt can be a good idea if you have good credit and can qualify for better terms than what you have now and you can afford the new monthly payments. However, you might think twice about it if your credit needs some work, your debt burden is small or your debt situation is dire.

What do I need to qualify for debt consolidation? ›

How to qualify for debt consolidation
  1. Check credit score. You'll typically need a credit score of at least 700 to qualify for a debt consolidation loan with a competitive interest rate. ...
  2. List out debts and payments. ...
  3. Compare lenders. ...
  4. Apply for loan. ...
  5. Close loan and make payments.
Jan 12, 2024

What is the best option to consolidate debt? ›

5 best debt consolidation options
  • Balance transfer credit card.
  • Home equity loan or home equity line of credit (HELOC)
  • Debt consolidation loan.
  • Peer-to-peer loan.
  • Debt management plan.
Jan 19, 2024

Can I be denied debt consolidation? ›

Insufficient credit history or poor payment history can also lead to a denial of a debt consolidation loan. Remember, your payment history is the most important factor in your credit score, comprising 35% of your FICO® Score. Even one missed payment can damage your score.

What credit score do you need for a debt consolidation loan? ›

Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it's likely lenders will require a minimum score between 580 and 680.

How long does debt consolidation stay on your record? ›

Debt consolidation itself doesn't show up on your credit reports, but any new loans or credit card accounts you open to consolidate your debt will. Most accounts will show up for 10 years after you close them, and any missed payments will show up for seven years from the date you missed the payment.

What is the credit card forgiveness program? ›

Credit card debt forgiveness is when some or all of a borrower's credit card debt is considered canceled and is no longer required to be paid. Credit card debt forgiveness is uncommon, but other solutions exist for managing debt. Debt relief and debt consolidation loans are other options to reduce your debts.

How to get rid of credit card debt without paying? ›

Bankruptcy is your best option for getting rid of debt without paying.

How to get rid of 10,000 credit card debt? ›

7 ways to pay off $10,000 in credit card debt
  1. Opt for debt relief. One powerful approach to managing and reducing your credit card debt is with the help of debt relief companies. ...
  2. Use the snowball or avalanche method. ...
  3. Find ways to increase your income. ...
  4. Cut unnecessary expenses. ...
  5. Seek credit counseling. ...
  6. Use financial windfalls.
Feb 15, 2024

Does consolidating credit card affect credit score? ›

Debt consolidation puts multiple debts into a single account to make your payments easier. Debt consolidation can lower your credit score temporarily, but your score will improve if you make payments on time.

What happens to credit card after debt consolidation? ›

If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.

How can I pay off $50000 in debt? ›

Make a Plan to Tackle $50K in Credit Card Debt
  1. Reevaluate or Create Your Budget. ...
  2. Look for Ways to Decrease Recurring Expenses and Increase Income. ...
  3. Set Concrete Goals. ...
  4. Ask for a Lower Interest Rate. ...
  5. Look Into a Debt Consolidation Loan. ...
  6. Consider a Balance Transfer Credit Card. ...
  7. Credit Counseling. ...
  8. Debt Settlement.
Sep 9, 2020

Why would you consolidate credit card debt? ›

Debt consolidation is the act of taking out a single loan or credit card to pay off multiple debts. The benefits of debt consolidation include a potentially lower interest rate and lower monthly payments. You can consolidate your debts using a personal loan, home equity loan, or balance-transfer credit card.


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