What is credit card consolidation and how does it work?

Staying on top of multiple credit card bills can be tough. And if you’re struggling to keep up with payments, consolidating your credit card debt could help.  

Credit card consolidation can simplify bill paying by combining multiple credit card bills into one single bill. There are different methods that can be used to do this, but there are some important questions worth asking before deciding to consolidate. Find out more with this guide.

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What is credit card consolidation?

Credit card consolidation is the process of combining multiple credit card bills into a single bill. 

Credit card consolidation doesn’t erase your credit card debt. But it could help you better manage your debt and pay it off more quickly. It could even save you money on monthly payments, interest or both.  

How does credit card consolidation work?

There are different methods that can be used to consolidate credit card debt. But typically, the process involves taking out a new loan or credit card and paying off existing credit card balances with funds from the new account. From there, the borrower will begin making monthly payments toward the new loan or card.

How to consolidate credit card debt

There are different strategies that can be used to consolidate credit card debt:

Balance transfers 

A balance transfer is the process of moving a balance from one credit card to another during credit card consolidation. Be sure to check with your credit card company to see if there’s a fee for transferring a balance. Also, consider other potential impacts on your account, including how a balance transfer might change the way you pay interest on new purchases.

Personal loans 

Borrowers could use a personal loan or debt consolidation loan to combine multiple credit card bills into one monthly payment. Private lenders—like banks, credit unions or installment loan companies—can offer personal loans. Compared to credit cards, the interest rates tend to be lower. 

Home equity loans (HELs)

Credit card consolidation can also be achieved by taking out a loan against the equity in your home. A HEL provides a lump sum of money at a fixed interest rate that can be used to pay down credit card debt. And the interest rate tends to be lower than other types of loans. 

Home equity lines of credit (HELOCs)

A HELOC is similar to a HEL because it uses the equity in a home to secure the loan. But a HELOC provides funds in the form of revolving credit that can be continuously withdrawn from during a certain period of time—typically with a variable interest rate. Both a HEL and a HELOC may offer lower interest rates, but they use your home as collateral. This means the lender has the right to claim this asset should you stop making payments on the loan. This is why it’s best to use caution before moving forward with this type of loan.

Debt management plans (DMPs) 

DMPs are typically offered by nonprofit credit counseling organizations. They usually work by finding a way to pay off your debt in three to five years through a range of services. But it’s best to exercise caution when working with a DMP and read the fine print to make sure they’re not charging upfront fees or advising you to stop making payments to your credit card accounts. 

You can find a reputable credit counselor using the National Foundation for Credit Counseling or the Financial Counseling Association of America—both recommended by the Consumer Financial Protection Bureau (CFPB). 

For a more comprehensive guide, check out four ways to consolidate credit card debt.

Pros and cons of consolidating credit cards

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

Credit card consolidation pros

  • 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 quicker using a debt consolidation loan with a fixed monthly payment.

Credit card consolidation cons

  • This process doesn’t necessarily offer a long-term solution for getting out of debt without fixing the underlying problem.
  • There may be upfront fees like balance transfer fees, closing costs or loan origination fees.
  • Debt consolidation loans don’t always offer interest rates lower than those on your existing accounts.
  • Certain debt consolidation companies may actually be debt settlement companies, which can be risky services to use. This is because they typically charge fees and, in most cases, encourage you to stop paying your credit card bills while they’re negotiating terms. 

Credit card consolidation FAQs

Still want to know more? Here are a few common questions about credit card consolidation: 

What should I consider before consolidating credit cards?

According to the CFPB, 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 to a credit counseling service. A credit counseling service can give you money management tips and provide 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. You may be able to pay down credit card debt without a credit card consolidation loan by building a budget that works for your lifestyle.

Are there risks to consolidating credit cards?

In short, yes. The potential fees assessed on a loan or balance transfer could end up costing you more in fees and interest than you save, even if you get a new rate that’s lower than your old one. Also, without a plan to reduce spending, credit card consolidation may not be a successful way to reduce your debt in the long run. 

And watch out for companies that advertise debt consolidation services—be sure to read the fine print and get all the details on their offers. If it seems too good to be true, it’s best to use caution before making any decisions. 

Does credit card consolidation hurt your credit?

If you’re able to lower your rates or your payments by consolidating, you may be able to pay more of your balance each month, which can be one good way to improve your credit. But it’s important to know that opening a new credit card account to transfer a balance does create a hard inquiry on your credit reports, which might lower your credit scores temporarily.

In a nutshell: Credit card consolidation

Credit card consolidation is a way to streamline multiple credit card bills into one single bill. And if you’re able to secure a lower interest rate than you have on your current credit cards, it may lead to lower monthly payments. Ultimately, credit card consolidation could help you better manage your credit card debt and pay it off more quickly. 

If you’re having a difficult time keeping up with monthly bills, here are a few other ways to pay off debt that might work for you.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

Capital One does not provide, endorse or guarantee any third-party product, service, information, or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners.

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