consolidate credit card debt

4 Ways to Consolidate Credit Card Debt


High-interest credit card debt. If those five words send chills up and down your spine, you know all-too-well the hold those monthly payments can have on you. It can feel a bit impossible to manage thousands of dollars of debt, and trying to make a dent in your debt balance can feel like a never ending uphill battle. 

However, there is a way out. Through debt consolidation loans and strategies, you can potentially combine your balances into one lower monthly payment to achieve your goal of being debt-free. To help you decide if debt consolidation makes sense for you, the Finance Opinion team compiled a few pros and cons, along with four strategies to implement to help consolidate your monthly payments and make life a bit easier on your wallet. 

Does Debt Consolidation Make Sense?

Before consolidating your credit card debt, there are a few factors to consider. First, look at the amount of credit card debt you have. If your balance is small, meaning you can pay it off within six months to a year based on your current budget, and you’d only save a small amount through consolidation, don’t bother. Alternatively, if your total debt is greater than half your income, our team suggests that you may be better off seeking debt relief

However, if your monthly bill payments toward debt (including your rent or mortgage) don’t exceed 50% of your monthly gross income, you have good credit to secure a lower-interest consolidation loan, and you have consistent cash flow to continue debt repayments, consolidating can be a smart financial move.

4 Ways to Consolidate Your Debt

1. Personal Loan

Personal loans tend to have lower interest rates (about 8% – 9%, on average), than those of credit cards (18%, on average), so they can be a smart option when consolidating credit card debt, given you’ll be saving cash on interest charges. 

By taking out a personal loan, you’ll be able to pay off your high-interest debt, but keep in mind you’ll have a new monthly payment to keep track of, which can vary depending on your loan terms and how much you borrow.

You can always check to see how much you qualify for, and what your monthly payment would be, before having an official credit check run on sites like Credit Karma.

2. Tap Into Your Home Equity

Tapping into your home’s equity – either through a home equity loan or line of credit – can be a good tool for paying off high interest credit card debt given their low interest rates and longer repayment timelines. You can use the funds from your equity loan to pay off higher-interest debt, and even land a lower overall monthly payment for your new home equity loan.

While this method does only apply to homeowners, especially those with a higher percentage of built up equity (about 15% – 20%), you should be aware that, by tapping into your home’s equity funds, you end up using your home as collateral. This means if you make frequent late payments and default on the loan, you can end up losing your home.

3. Borrow from Your 401(k)

While risky, there are some times when paying off debt using funds from your 401(k) makes sense – and paying off credit card debt falls into that category. As Paul Palazzo, CFP, COA, managing director of financial planning at Altfest Personal Wealth Management suggests, “it can be beneficial to cash out a portion of your 401(k) to pay off a loan (or credit card) with an 18% to 20% interest rate.” 

However, withdrawals from your 401(k) don’t come without hefty fees and taxes, which vary depending on if you’re of retirement age or not, so always carefully weigh your options before making a decision.

However, withdrawals from your 401(k) don’t come without hefty fees and taxes, which vary depending on if you’re of retirement age or not, so always carefully weigh your options before making a decision. 

4. Get a 0% APR credit card

As the name suggests, a 0% APR credit card means you don’t accrue any new interest on your card for up to 18 months. So by transferring all of your credit card balances to this new 0% APR credit card, you can save a lot of money on interest payments, ultimately helping you pay off your credit card debt faster. 

Keep in mind that a 0% APR card is only available to those with excellent credit, but can be a smart option in consolidating high interest credit card debt.

Have you consolidated your credit card debt and want to share your experience? Send us a note in the comments!


The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.

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