5 Strategies to Consolidate and Pay off Your Credit Card Debt Faster

A woman with a laptop, mobile phone calculator and credit cards wrtites in a notebook.
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So you’re falling behind on your credit card payments. Hey, it happens to the best of us. We’ve all been there.

First you were just a little behind. But now, you’re paying so much in interest to Chase or Citibank or Capital One every month, you can’t afford to pay toward the principal you owe. You’re just treading water financially, and you’ll never get free that way.

What are you going to do about it?

If you have a lot of credit card debt, you should seriously look into consolidating it. Credit card consolidation is when you borrow money at a low interest rate and use that loan to pay off the balances from your high-interest credit cards.

It’s a twofer: You can save a ton of money on interest payments, and you free up cash to pay off debt faster.

We’re going to look at five different ways to consolidate your credit card debt, along with our best tips for each one.

But first, there are three important steps you’ll need to take if you really want this plan to do what it’s supposed to do.

Tips For Making Any Debt Consolidation Work

Hands use scissors to cut up a pile of credit cards.
Aileen Perilla/The Penny Hoarder

Debt consolidation isn’t for everyone. It’s not a magic wand. It’s actually a yearslong process that requires discipline. Here’s how to make sure it’ll work for you.

1. Stop Using Your Credit Cards

First, make a budget you can actually stick to. Spend a few weeks tracking what you really spend. What seems like small costs — going out for lunch or coffee every day — add up over time.

Here’s a good Penny Hoarder tip for budgeting: Cut back to one monthly payment method — paying with all cash or with one debit card, for example — to make it easier to track your expenses.

Cut up your credit cards or lock them away. Put yourself on a spending diet. If you can’t pay cash for it, you don’t need it.

You don’t need to close all your credit card accounts. That would increase your credit utilization rate — the percentage of your overall credit you’re using — which could hurt your credit score. You need to do to take away the temptation to spend more than you’re bringing in. Do whatever you need to do.

2. Figure Out How Long You’ll Need to Pay Off Your Debt

This is important: To successfully pull this off, you should be able to pay your debt in two to five years, the typical length of a debt consolidation loan.

To determine whether you can do that, figure out what you owe. Sign up with a free service like Credit Sesame. It will generate a credit report that shows your balances on any credit cards, loans or unpaid bills.

If you have more debt than you can pay off in five years, focus on getting it down to a manageable number. Once you start paying attention to your spending, you’ll usually find paying off debt can be done more quickly than you initially thought.

3. Build an Emergency Fund

Things will come up as you repay your credit card debt, so get prepared before you start. Build an emergency fund of at least $1,000 to cover emergencies and unexpected expenses.

This fund will help you maintain momentum on your debt-free journey when expenses come up.

5 Ways to Consolidate Your Credit Card Debt

You have a few options to consider here. Keep in mind what your ultimate goal is: to borrow money at a low interest rate so you can kill off high-interest debt.

Let’s take a look at five different ways you could do that.

1. Get a Personal Loan

Because they tend to have lower interest rates than credit cards, many people will take out a personal loan to pay off existing debts. Just make sure you’ll be able to repay the lender a fixed amount every month for the term of the loan.

The pros: You can often apply for a personal loan without hurting your credit score, and you don’t need a high score to qualify.

The cons: These loans also usually have an upfront origination fee, and interest rates vary based on your credit score. Someone with a “good” credit score (between 700 and 749) can expect fixed rates anywhere from 6% to 36%.

With that kind of rate variation, it’s important to shop around for a loan. Credit unions tend to have the best rates locally, but if you don’t have time to apply for one, you can search the web.

And fortunately, instead of spending hours scouring the internet, you can go window shopping at an online marketplace that’ll help pinpoint the best loan offers for you.

Here are some of the best places we know to find a credit card debt consolidation loan:

AmOne: Borrow More Money

AmOne lets you borrow up to $50,000, and interest rates start at 5.99% APR.

AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 5.99% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

Upstart: Good for a Short Credit History

Founded by ex-Googlers, Upstart is a lending company that’s striving to change the personal loan game. Rather than solely focusing on your credit score to determine your borrowing power, it looks at other factors, too, including your education and employment history (though it does require a 620 credit score).

Upstart tends to be especially helpful for recent grads who have a short credit history and a mound of student loans.

2. Use a Balance-Transfer Card

Two credit cards stick out of a wallet.
Tina Russell/The Penny Hoarder

If you have good or excellent credit, you could apply for a zero- or low-interest credit card, and if approved, transfer the balance from your high-interest cards.

You’ll usually need a credit score around 700 to get approved, but balance transfer credit cards offer a 0% interest rate on transfers for 12 to 21 months with credit limits up to $100,000.

Of course, that’s not as long as the two- to five-year time frame that a personal loan will give you to pay back the money you owe, so this method is best for those with small amounts of debt compared to their income.

The pros: If you transfer a credit card balance and repay it during your new card’s 12- to 21-month promotional period, you’ll pay no interest. And you won’t run into prepayment penalties you see in some personal loans. SCORE!

The cons: After that sweet, sweet promotional period ends, a high interest rate usually kicks in. If you don’t have your balance paid off by then, you’re back to paying high interest all over again. And many cards will charge you a balance transfer fee — usually something like $5 or 3% of the balance you’re transferring.

It’s also important to be aware that if you miss a payment, it might nullify the 0% offer. And you usually can’t get approved for a transfer from a card with the same issuer.

3. Borrow or Withdraw From Your Retirement Plan

Here’s an interesting reality check: Virtually any financial adviser, and most Penny Hoarders, will tell you that this is a bad idea, because it will impact your retirement savings.

But 1 out of every 4 American households ends up withdrawing or borrowing from a 401(k) at least once, according to a 2013 study from the financial website HelloWallet. So clearly, a lot of people feel it’s a valid option.

Let’s go over the basics of a 401(k) loan here:

  • You can borrow as much as half the balance of your employer-sponsored 401(k), up to $50,000, without penalty.
  • You can only withdraw money you contributed to the plan; you can’t withdraw your employer’s match.
  • You typically have to repay the loan within five years.
  • If you leave your job, you’ll have to pay back the loan within 60 days or take the amount as a heavily taxed distribution.

The pros: There’s no credit check to take out a 401(k) loan, so this could be a good option for someone with a low credit score. Interest on a loan from your 401(k) is paid to yourself instead of a bank, and the loan won’t be taxed if you repay the money within the term.

The cons: You give up any growth that money would’ve seen in the market. And if you cannot pay the loan back, you’ll pay a 10% penalty and taxes on the amount come April.

4. Borrow Against the Value of Your Home

An aerial view of houses in a suburban neighborhood.
jhorrocks/Getty Images

If you own a home, you could also consider getting a home equity loan or line of credit.

These typically offer way lower interest rates than credit cards. That’s because you’re borrowing against your equity.

What’s equity? Every time you make a mortgage payment, and every time your home’s market value goes up, you’re building equity. So if you’ve owned your home for a while, you probably have equity you can tap into.

So what’s the difference between a home equity loan and a home equity line of credit?

  • With a home equity loan, you’re borrowing a fixed amount of money, which you receive in a lump sum. You pay it back at a fixed interest rate over a set period of time, like three or five years.
  • In contrast, a home equity line of credit offers you more flexibility. It allows you to just borrow money whenever you need it, using your home as collateral. The interest rate you’re paying on the money you borrowed may go up or down, depending on how financial markets are doing.

The pros: The interest rate will almost certainly be lower than what your credit cards are charging you, and the term is longer — up to 15 years.

The cons: You are putting your house at risk if you default on the loan, so this is not the safest get-out-of-debt strategy.

5. Debt Management Program

Finally, there are debt management programs to help in your credit card consolidation. These are offered through credit counseling companies.

You’ll be assigned a credit counselor, who will set up a repayment and education plan for you. They’ll handle your consolidation and negotiate better interest rates and lower fees.

Credit counseling usually consists of a review of your household budget, credit reports and consumer debt with the goal of improving your financial situation.

This program is specifically for unsecured debts, like credit cards and medical bills.

The pros: A debt management program pays your creditor for you, ensuring you stay current on the monthly payments of your debt. Your credit score may even improve during the program.

The cons: If you miss a payment, you can be dropped, and you’ll lose all the benefits you gained. The program typically lasts three to five years and may not have an option to pay off your debt faster.

Do your due diligence when seeking out a program. Look for nonprofit financial education institutions like the National Foundation for Credit Counseling to avoid getting scammed.

If You Can’t Afford to Pay the Debt

If it turns out that you really can’t repay your debts, consider bankruptcy as a last resort. Here’s the skinny on filing for bankruptcy and how it affects your life.

That shouldn’t be your first choice, though. Bankruptcy will be a black mark on your credit history — one that lasts up to 10 years.

The bottom line: If you’re deep in credit card, consolidating is a smart, strategic way to lower interest rates and pay it down faster.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He knows a lot about massive debt, based on his personal experience with it.

This article contains general information and explains options you may have, but it is not intended to be investment advice or a personal recommendation. We can't personalize articles for our readers, so your situation may vary from the one discussed here. Please seek a licensed professional for tax advice, legal advice, financial planning advice or investment advice.