What is credit card consolidation?

Credit card consolidation is the process of combining multiple credit card bills into a single payment. It doesn’t erase credit card debt. But it could simplify your debt into a single monthly payment and reduce interest.

To consolidate your credit card debt, you could consider a balance transfer credit card or a debt consolidation loan. But before making a decision, review the pros and cons to help decide which method is right for you. 

What you’ll learn:

• Credit card consolidation involves getting a new loan or line of credit to combine multiple credit card bills into one monthly payment. 

• Credit card consolidation methods include balance transfers, debt consolidation loans, home equity loans (HELs) and home equity lines of credit (HELOCs).

• Consolidating credit card debt may simplify bill paying and lead to lower overall monthly payments.

Credit card debt consolidation works by using a loan or a new credit card to pay off existing credit card balances. There are different ways to consolidate credit card debt. And what works for each person may differ based on their situation.

Here are some common ways to consolidate credit card debt.

• Balance transfers: A balance transfer is the process of moving the balances from multiple credit cards to a new card with a single monthly payment.

• Personal loans: A debt consolidation loan is a type of personal loan that lets you combine multiple credit card bills into one fixed monthly loan payment.

• HELs and HELOCs: HELs and HELOCs let you borrow against the equity you’ve built in your home and can be used to pay off multiple credit card balances.

Credit card consolidation has potential advantages and disadvantages to evaluate.

Credit card consolidation could help make your monthly payments more manageable and reduce the stress you may be feeling. Here are a few additional positives to consider.

• Credit card debt consolidation can help streamline multiple bills into a single payment.

• Some credit card consolidation methods can help you take advantage of a lower interest rate, lower your monthly payments and pay off debt faster.

• A low introductory rate for credit card balance transfers could lower your monthly payments.

• Your credit scores might improve if consolidation makes it easier to make payments on time. Payment history is the most important credit-scoring factor, according to FICO® and VantageScore®.

Consolidation doesn’t necessarily offer a long-term solution for getting out of debt without making other adjustments. It won’t eliminate credit card debt or decrease the principal balance owed. 

Here are some potential disadvantages to consider before deciding whether consolidating credit cards is the right choice.

• There may be upfront charges, like balance transfer fees, closing costs or loan origination fees.

• Debt consolidation methods don’t always offer interest rates lower than existing accounts do.

• Promotional interest rates typically only last for a limited time.

• Although monthly payments might be lower, debt consolidation is sometimes repaid over a longer period of time. According to the Consumer Financial Protection Bureau, that could mean paying more overall than if you hadn’t consolidated your debt.

• Certain debt consolidation companies may actually be debt settlement companies. Some of these companies may charge fees. And they might encourage you to stop paying your credit card bills while they’re negotiating terms.

Before turning to credit card consolidation, it may help to better understand how your debt came about and get advice from an expert on how to proceed.

With that in mind, here are things you could try before applying for a new credit card or loan to pay off your existing credit card debt.

• Talk with a credit counseling service. A credit counseling service can give you money management tips and advice specific to your situation. This could give you the tools you need to better manage your financial obligations in the future. 

• Review your spending habits. While you’re looking for a solution for paying off credit card debt, it may be helpful to understand how the debt accrued in the first place. 

• Try adjusting your budget. By creating a budget that works for your lifestyle, you may be able to find ways to save money and start paying down credit card debt—without credit card consolidation.

Here are the answers to some frequently asked questions about credit card consolidation.

Consolidating credit cards is one way to streamline multiple monthly payments into a single payment. If you can get a lower interest rate than you currently have, you could also reduce your minimum monthly payments. But balance transfers and debt consolidation loans aren't always a perfect fix. Be sure to understand the pros and cons before committing.

If you’re considering a balance transfer, you could compare balance transfer credit cards from Capital One. You can even see whether you'll be approved for a new card first. It's quick, and it won’t hurt your credit scores.