Credit card debt can quickly become overwhelming; it’s too easy to take on more credit card debt than is affordable. For certain borrowers, credit card debt consolidation is a smart strategy to manage debt.
Credit cards carry high interest rates and have repayment schedules that drag debts out and cost borrowers a lot. Deciding to consolidate credit card debt can help pay off credit cards faster and save on interest.
With our simple guide, you’ll learn how to consolidate credit card debt.
Is credit card debt consolidation a smart move?
When you consolidate credit card debt, you take out a new personal loan and use those funds to pay off existing credit card balances.
In some cases, consolidating credit card debts makes them easier and cheaper to repay. But whether that is true for you will depend on a few factors.
Benefits of consolidating credit card debts
First, there are your credit card rates. The higher your credit card rates, the better your chances of saving with a personal loan.
You’ll also want to take a look at your credit history. If you have a higher credit score and favorable credit history, you’ll have a better chance of qualifying for a personal loan and cheaper rates.
Another important benefit of credit card debt consolidation is simplifying your debts. You pay off credit cards and replace them with a single monthly payment.
With fewer account balances and interest rates to keep track of, you’ll be at lower risk of missed payments or racking up fees.
What to watch out for
Credit card debt consolidation won’t be right for everyone. If you have bad credit, the personal loans you’ll qualify for could carry higher rates than what you face on your credit card.
You will also have to be committed to pairing credit card consolidation with responsible spending habits. If you consolidate debts without adjusting your habits and cutting back on spending, your credit card balances will shoot up again and you’ll end up with even more debt.
Consolidate credit card debt in 5 steps
If credit card debt consolidation makes sense for you, next is to start the process. Knowing how to consolidate credit card debt, you’ll be able to compare different loans and terms and choose the best option.
Here are five easy steps to consolidate credit card debts.
1. Catalog all credit card debts
First, you’ll need to know how much you owe on what cards. Log into each of your credit card accounts to see what your current balance is. If you have any outstanding credit card rewards that you can apply to the credit card to lower your balance, do that now. Then record the remaining balance after this credit is applied.
Alternatively, you can request a copy of your free annual credit report. This will list all of your credit card accounts, as well outstanding balances.
2. Figure out how much to borrow
Next, you’ll need to add up the balance for each credit card you wish to pay off. This will be the amount you’ll need to borrow to consolidate your credit cards and pay them off.
Take a look at different personal loan terms. Depending on your situation, you might need a lower monthly payment. Or you could be focused on getting rid of credit card debt as fast as possible.
Use the handy calculator below to determine the loan amount, as well as to play with different loan terms to see which are the best fit for your finances and goals.
Credit Card Consolidation Calculator
3. Shop for a lender
To find a lender, it’s helpful to know what kind of loan you need and what your credit score is.
With this information in hand, look at what different lenders offer for your credit background and loan needs. Make sure you check unconventional lenders like credit unions or online personal loan providers.
Pay attention to the APRs different lenders offer. You will also want to compare other costs like origination fees. Finding a lender with low personal loan rates and fees will help keep your costs low, too.
4. Apply for a loan
Once you have found a lender that offers a good deal on a personal loan for your credit score, it’s time to apply.
Most lenders have an online or in-person application you can fill out to be pre-approval for a personal loan. You’ll need to provide identifying and financial information on this application, including your Social Security number and income.
The lender will check your credit report and verify your information. If you meet all the requirements, you’ll receive a notice of approval with an outline of the loan terms
5. Pay off credit card debts
After applying and being approved for a personal loan, the next step for credit card debt consolidation is to sign the loan agreement. Make sure you carefully review and understand the agreement and terms of your loan.
Once you agree to the contract and submit it, the lender will ask for your bank account information so they can send the funds from the loan.
How fast you receive your personal loan money will depend on the lender, but many will pay out funds as soon as the next day.
Once the funds appear in your account, it’s time to settle your credit card debts. Send the correct amount for each credit card’s balance, and make sure to secure confirmation of the payment.
Remember, you need to keep up with payments on your new loan for credit card debt consolidation.
Develop better money habits
Once your credit cards have been paid off, resist the temptation to use them. You don’t want to end up in a similar predicament in the future. Put away your credit cards and practice responsible spending.
Not sure where to start? Here are seven tricks that will help you cut back on spending.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
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.
8 Important Disclosures for Avant.
* 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
** 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 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|5.99% – 24.99%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|