Your Ultimate Guide to Credit Card Consolidation

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Americans owed more than $1 trillion in credit card debt in 2016 according to the Board of Governors of the Federal Reserve. If you’re a borrower and you feel like you’re paying too much in interest — or if you have lots of debt spread across different credit cards — credit card consolidation may be a good approach to getting your debt under control.

Credit card consolidation can often reduce costs by lowering your interest rate. “Since credit card rates tend to be in the high teens to low twenties, a reduced rate offers the chance for some creative refinancing,” said Warren Ward, certified financial planner and founder of WWA Planning & Investments.

Unfortunately, if not done the right way, consolidating debt can sometimes make your financial situation worse. “The saying ‘robbing Peter to pay Paul,’ sometimes is used when discussing debt consolidation,” warned Magdalena G. Johndrow, certified fund specialist and associate financial advisor at Farmington River Financial Group. “If you cannot save money by negotiating a lower rate, it typically doesn’t help to consolidate. In this case, you are simply borrowing money to pay off borrowed money without any added benefit to you.”

Since credit card consolidation could be a major benefit or a big detriment depending on how you do it, it’s important to understand the process and consolidate only if it makes financial sense. This guide will tell you everything you need to know to make your choice.

What is credit card consolidation?

Credit card consolidation is the process of combining multiple debts into one new loan, ideally with better terms. As Johndrow explained, “debt consolidation is essentially taking out a new loan in order to pay off all your existing loans. Moving forward, you only have to repay the one new loan you took out.”

As our credit card consolidation calculator shows, if you owed $5,000 on your MasterCard with an 18% interest rate and $200 monthly payments, and you owed $2,000 on your Visa with an 18% interest rate and $80 in monthly payments, you could consolidate these two debts.

If you consolidated by taking a three-year loan at a 10% interest rate, you would drop your monthly payment from $280 to $226. You would pay $1,131 in interest over the life of the loan instead of $1,680, which would save you $549.

credit card consolidation

How does credit card debt consolidation work?

To consolidate credit card debt, you’ll need to apply for a new loan from a financial institution. “You may obtain debt consolidation services through a bank, private lender, home equity loan, and/or in some instances, debt relief companies,” Johndrow said.

You’ll need reasonably good credit to qualify for debt consolidation at a favorable rate. After you have applied and qualified for a new loan, you’ll use the proceeds from the new loan to pay off the debts you were hoping to consolidate.

For example, if you took a personal loan from your local credit union for $7,000 to repay your $2,000 Visa and a $5,000 MasterCard balances, the credit union would deposit $7,000 into your checking account, which you would then use to pay off the balances in full.

You could close the credit cards after paying them off, but Johndrow does not recommend it. Closing the credit cards could lower your debt-to-credit ratio, which would hurt your credit score. Be careful, though. “Open credit cards may be tempting to use, especially if you haven’t fixed your budget and spending habit,” she said.

If you consolidate your debt but run up balances on your open cards, you’ll be in a much worse financial situation because you’ll be in credit card debt again and have a personal loan to pay off.

“All too often, we hear about people using the [debt consolidation] strategy to increase their credit line and their spending,” Ward said.

What are your options for consolidation?

There are a couple of options for debt consolidation.

  • Credit card balance transfers. “I think the classic example of consolidation is when someone is offered a new credit card with a low — sometimes even zero — interest rate, stipulating that other card balances be rolled into the new account,” Ward said. “These transfer rates are commonly locked-in for some specific period of time as long as payments are kept current.” ValuePenguin recommends credit card balance transfers as the best option for consolidating less than $15,000 in debt.
  • A personal loan. Debt consolidation is the second most common reason people apply for personal loans, according to a 2017 SuperMoney study. The average interest rate you’d pay on a personal loan ranges from 10.3% to 32%, depending upon your credit, according to ValuePenguin.
Credit Score Average APR on Personal Loans
720-850 10.3% to 12.5%
680-719 13.5% to 15.5%
640-679 17.8% to 19.9%
300-639 28.5% to 32%
  • There are also companies that advertise special consolidation loans or consolidation plans. But, debt consolidation programs are typically not an effective way to reduce your debts because there are often high fees. “It’s very hard to pay down a large amount of debt when the program you are paying each month takes large fees off the top, leaving little for the creditors,” personal finance expert Matthew Zimmelman told CBS News.

How to go through the credit card consolidation process

If you’re thinking about consolidating debt, you’ll want to evaluate your options and see which debt consolidation solution would save you the most money.

“Begin by contacting several companies and seeing what terms they can provide you,” Johndrow said.

Your best resources to find a loan will vary depending upon what method of debt consolidation you want to use.

  • If you’re interested in a credit card balance transfer: You can find lists online of balance transfer credit cards offering low interest rates or 0% interest. Compare the lengths of the promotional periods (six months, 12 months, 18 months or longer), and find out if there is a balance transfer fee (a 3 percent fee is common). The new card will require minimum monthly payments, but you should ideally pay more than the minimum to repay the balance before the promotional rate expires.
  • If you’re interested in a home equity line of credit: Your existing mortgage lender or other banks and credit unions offer home equity lines of credit. Compare interest rates, application fees, appraisal costs, monthly payments, and find out if the rate is fixed or variable.
  • If you’re interested in a personal loan: You can find a personal loan through local or national banks and credit unions. You can also use our marketplace to apply for personal loans. Compare interest rates, repayment periods, monthly payments, and application fees. Find out if there are any prepayment penalties in case you want to pay off your loan early.

When you compare options, you don’t just want to focus on whether your new payment will be lower. Looking at the whole picture is vital.

“Make sure that you getting truly a lower rate, not simply [lowering your payments] because the length of the loan is extended,” Johndrow warned. “In this scenario, you may obtain a lower monthly payment but you’ll stay in debt for a longer period of time, therefore paying the lender more.

You’ll also want to find out qualification requirements before applying to make sure your income and credit score are good enough to qualify for the loan.

What are the advantages of credit card consolidation?

Consolidating debt can have substantial advantages if you find the right consolidation loan, including:

  • Lower interest rates. A lower interest rate will do more than just decrease the total amount paid to your creditor and reduce your monthly payment. “If the interest rate is lower, you can often pay more into the principal value of the loan, paying your debt off faster,” Johndrow said.
  • Credit score improvements. “The percentage of credit utilization is a significant factor in someone’s credit rating,” Ward said. “Adding additional credit [from the consolidation loan] reduces the percentage in use, yielding a positive effect on [your] credit score.”
  • Convenience. Consolidating loans means you have just one payment to make and, with everything in one place, missing payments becomes less likely.

The biggest benefit may be that consolidation allows you to get a handle on your financial situation.

“After over 25 years helping people with their investment and planning decisions, I think the most critical component of anyone’s financial life is maintaining a balanced budget,” Ward said. “If consolidation helps that happen, it’s a significant pro.”

What are the disadvantages of credit card consolidation?

While there are lots of reasons to consolidate, there are some serious downsides to consider.

  • Low interest rates may not stay low forever. If you take a balance transfer, the low rate is just promotional; if you haven’t paid off the debt by the time the promotional period expires, interest could rise significantly. Missing a single payment could also send the rate skyrocketing. Plus, Ward said the low promotional rate is usually only for the transferred balance. “For everyday purchases, rates are almost always quite high. Avoid using the card for everyday purchases.”
  • You may put your home at risk. If you can’t make payments on credit card debt, your house is usually still safe from being lost — even if you have to file bankruptcy — as long as you’re current on your mortgage. But, if you borrow against your house to repay debt, you’re turning that debt into secured debt and putting your home at risk. Even if you can make the payments, you’re depleting the equity you have in your house. “Falling too far behind might result in the loss of all home equity — an especially ugly con,” Ward said.

Finally, when you consolidate debt, you free up your line of credit so you have more available credit that you could potentially max out. “If you increase borrowing without a plan to reduce debt, you’ll be in a worse position than before,” Ward cautioned.

Should you consolidate credit card debt?

Whether you should consolidate debt or not will depend upon whether you can get a new loan that will save you money on your current debt without taking on risks you feel are unacceptable, including putting your house in jeopardy.

“If you lower your interest rate when you consolidate your credit, then yes, consolidation can help save money,” Johndrow said. But, there’s a caveat: If you lengthen your repayment term — even if you pay less interest — you could end up owing more.

If you don’t have a plan to get your finances under control, you may want to tackle that issue first before consolidation.

”It’s important to address the underlying issue of debt, budgeting, and your spending habits to really remain on track and to not find yourself in this scenario again,” Johndrow said. She recommends working with a financial advisor to set up a budget and debt repayment plan that works.

If you think debt consolidation may be a smart choice for you, shop around at our personal loan marketplace or at our credit card marketplace to find out about new loan options that could allow you to repay off your higher interest debt.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 7.08% APR to 15.37% APR (with AutoPay). Variable rates from 5.81% APR to 14.11% APR (with AutoPay). SoFi rate ranges are current as of August 10, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.81% APR assumes current 1-month LIBOR rate of 2.07% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  3. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  4. Terms and Conditions ApplySOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS #1121636.
    (www.nmlsconsumeraccess.org)

2 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.

3 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 4.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 4.99% APR loan, a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings – contact FreedomPlus for further details.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5 Important Disclosures for LendingPoint.

LendingPoint Disclosures

  • Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon LendingPoint’s final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. LendingPoint makes loan offers from $2,000 to $25,000, at rates ranging from a low of 15.49% APR to a high of 34.49% APR, with terms from 24 to 48 months. The loan offer(s) shown reflect a 28 day payment cycle which is being offered as a courtesy as many of our customers are paid on a biweekly schedule and thus this may better align the loan payment dates with your actual income receipt schedule.

6 Important Disclosures for LendingClub.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.


7 Important Disclosures for Earnest.

Earnest Disclosures

  1. Earnest does not lend in Alabama, Delaware, Kentucky, Nevada, or Rhode Island.

8 Important Disclosures for Avant.

Avant Disclosures

* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.

** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33


* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% – 29.99%$1,000 - $50,000Visit Upstart
5.81% – 15.37%1$5,000 - $100,000Visit SoFi
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%2$5,000 - $35,000Visit Payoff
4.99% – 29.99%3$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%4$5,000 - $50,000Visit Citizens
15.49% – 34.49%5$2,000 - $25,000Visit LendingPoint
6.16% – 35.89%6$1,000 - $40,000Visit LendingClub
5.49% – 18.24%7$5,000 - $75,000Visit Earnest
9.95% – 35.99%8$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.