Credit card consolidation: What is it, and how does it work?

Credit card consolidation is the process of combining multiple credit card bills into a single payment. The process doesn’t erase credit card debt. But it could simplify your payments and reduce interest to help you better manage credit card debt.

You may consider a balance transfer credit card or a debt consolidation loan to roll several payments into one. But before making a decision, look at the pros and cons to decide which method is right for you. 

What you’ll learn:

• Credit card consolidation works by taking out 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 cards may simplify bill paying and lead to lower overall monthly payments.

When you consolidate credit cards, you’re combining the current outstanding debt you owe various card issuers. The goal is a lower, more manageable monthly payment. While this doesn’t get rid of your debt, you may find it’s easier—and requires less time—to pay off.

Credit card debt consolidation works by using a loan or a new credit card to pay off existing credit card balances. Consolidating credit card accounts can reduce the number of monthly payments to manage. And depending on the terms of the new debt, consolidation could offer an overall reduced interest rate. 

But keep in mind that any promotional “teaser” rates are for a limited time. And there may be fees to consolidate debt.

There are different ways to consolidate credit card debt. What works for each person may differ based on their situation. But here are some common credit card consolidation methods:

• Balance transfers: A balance transfer is the process of moving a balance from one credit card to another. 

• Personal loans: Debt consolidation loans are types of personal loans that let you combine multiple credit card bills into one fixed monthly payment.

• Home equity loans and home equity lines of credit: HELs and HELOCs let you borrow against the equity you’ve built in your home.

Credit card consolidation has potential advantages and disadvantages to consider before making any decisions:

Consolidating credit card debt could help make your monthly payments more manageable and reduce the stress you may be feeling. Here are a few positives to consider:

• Credit card debt consolidation can help simplify bill paying.

• Some credit card consolidation loans can help you take advantage of a lower interest rate.

• Finding a low introductory rate for balance transfers can potentially lower your monthly payments.

• You may be able to pay off debt more quickly using a debt consolidation loan with a fixed monthly payment.

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

Keep in mind that consolidation won’t eliminate credit card debt or decrease the principal balance owed. Here are some negatives to consider before deciding whether consolidating credit card debt is the right choice:

• This process doesn’t necessarily offer a long-term solution for getting out of debt without making other adjustments.

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

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

• 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. 

• Monthly payments might be lower because loans are repaid over a longer period of time.

There are a few things to try before applying for a loan or a new credit card 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 may provide the tools needed to better manage financial obligations in the future. 

• Review your spending habits. While finding a solution to pay off credit card debt, it’s helpful to understand how the debt was accrued in the first place. 

• Try adjusting your budget. By building a budget that works for your lifestyle, you may be able to pay down credit card debt without a credit card consolidation loan.

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

Consolidating credit card debt is one way to streamline multiple monthly debt payments into a single monthly payment. If you can get a lower interest rate than what you currently have, it may reduce your minimum monthly payments. But a debt consolidation loan or balance transfer isn’t always a perfect fix. Be sure to understand the risks and limits before committing.

Ready to learn more? Compare balance transfer credit cards from Capital One. You can even see whether you’re pre-approved first, with no harm to your credit scores.