U.S. Families Have $16.8K in Credit Card Debt. Here’s How to Consolidate It

cut up credit card on purple surface
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So, you’ve got credit card debt up to your eyeballs. You’re hemorrhaging money on interest payments to your buddies at Chase, Citibank and Capital One.

You’ve got to get out from under that burden. It’s time to get smart and refinance your debt.

Consolidate it. Make your evil black hole of debt more manageable. Get a personal loan with a low interest rate, and use it to pay off the balances from your high-interest credit cards.

Now, having said that, debt consolidation isn’t for everyone. It’s a long process, not a magic wand that’ll make your debt disappear. (Presto! Chango! Debt be gone!) The advantage here is, you’ll save some serious coin on interest payments, freeing up cash to pay down your debt.

We talked to some financial experts about this, and here’s what we learned. If you want credit card debt consolidation to work for you, you’ll need to take the following six steps:

1. Make a Budget

Most importantly, make a budget you can actually stick to.

Maggie Johndrow, a financial advisor with Farmington River Financial Group in Hartford, Connecticut, encourages her clients to spend 30 days tracking what they really spend. What seem like small costs — going out for lunch or coffee every day — may add up over time.

“Being honest with yourself is the first step to successfully paying down debt,” she said.

Here’s a Penny Hoarder strategy for budgeting. Streamlining to one main payment method — paying with all credit, debit or cash — makes it easier to to track your expenses.

Just wrapping loans into a lower-rate package isn’t going to help if there isn’t an underlying balanced budget,” says Warren A. Ward, a certified financial planner with WWA Planning & Investments in Columbus, Indiana. “The temptation of ‘extra’ cash is just too much for some people.”

2. Lose Your Credit Cards

Quit using them. Cut them up or lock them away.

Seriously. Put yourself on a spending diet. If you can’t pay cash for it, you don’t need it.

Just don’t close all your credit card accounts, which could hurt your credit score.

By closing existing cards, your available credit line shrinks, hurting your debt-to-credit ratio,” Johndrow says. “You’re better off paying off your credit cards and then simply not using them.”

3. Decide If Credit Card Debt Consolidation is For You

Debt consolidation is most effective for high-interest debts like credit cards. (The average U.S. household is carrying nearly $16,800 in credit card debt.)

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

“Take into consideration your ability to repay the debt that you’ve accumulated,” advises Josh Gehring, a senior vice president with the Bank of Oklahoma. “Create a plan for yourself that you can realistically afford.”

Figure out what you owe. Sign up with a free service like Credit Sesame. It’ll show your balance on any unpaid bills, credit cards or loans.

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

“A bankruptcy sticks on your credit report for many years, and it may not deal with all your debt,” Gehring says.

Talk it over with a financial adviser, a banker at your bank or someone whose judgment you trust.

4. Compare Your Debt Options — and Choose Wisely.

If bankruptcy is a bridge too far for you, check out your other options.

Debt settlement: You could sign up with a debt settlement company that promises to persuade your creditors to take less money than they’re owed. Beware, though. Debt settlement companies often charge high fees and can hurt your credit score.

A balance transfer card: If your credit is good, apply for a zero- or low-interest credit card. Then transfer the balance from your high-interest cards to your new card. To entice you, these balance transfer cards will offer you a super-low annual percentage rate (APR) — for a certain period of time. Then a double-digit interest rate kicks in.

A personal loan: Get a loan from a lender at a lower interest rate. Use that loan to pay off your high-interest credit cards. Then you repay the lender a fixed amount every month for a set time period, usually two to five years.

“Personal loans tend to have lower interest rates than credit cards,” Johndrow said.

An easy place to start is Even Financial, which can help you borrow up to $100,000. Type in your info, and it compares interest rates from several lenders. There’s no charge for this. Rates start at 4.99%, and repayment plans range from two to four years.

Another option to check out is Lending Club, a social lending platform that lets you apply for credit from the general public. You can borrow $1,000 to $40,000 from groups of people who each invest a little bit into your loan. Rates start at 5.99%.

Here’s our look at how Lending Club works.

5. Adulting

Congratulations! Now that you’ve got a debt consolidation loan, do yourself a favor and don’t miss your monthly payments.

Paying your credit cards on time accounts for 65% of your credit score,” Johndrow says.

6. Save for a Rainy Day — or Maybe a New Phone

One last thing. Get into a habit of saving up for major purchases instead of whipping out some plastic and buying something on the spot.

Sure, you’ll have to wait. But the things you really want are worth waiting for, aren’t they?

Stash and Acorns are two popular apps that offer easy, automatic ways to start saving and investing. They’re really useful for tricking your brain into saving more. You’ll save without even realizing you’re doing it.

At the very least, you’ll want some kind of emergency fund. Here’s our guide on how to start one.

If you’re drowning in credit card debt, your worst option of all is this: Don’t do anything. Just keep on paying all that interest, month after month.

“My main piece of advice is, don’t wait. You’ve got to take action as quickly as possible,” says Josh Gehring, who supervises nearly 60 banks for the Bank of Oklahoma.

“If you feel like you have a debt problem, you do.”

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

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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.