Ultimate Guide to Credit Card Consolidation

By Sam Swenson | Updated March 7, 2023
reading time 5 min read
Woman on yellow sofa with laptop holding a credit card

If you’ve been carrying a significant amount of credit card debt for more than a year, you likely feel the burden of your monthly payments.. It’s definitely hard to make progress  when the minimum monthly payments don’t do much to reduce your outstanding balance.

If you haven’t yet thought about ways to minimize the stress associated with mounting credit card debt, a credit card consolidation loan might be worth a look. 

What is credit card consolidation

When you consolidate your credit card debt, you take out a new personal loan and use the proceeds  to pay off balances on any existing credit card debt. You can then focus on making just one monthly payment to the consolidation loan company. 

Your new consolidation loan’s interest rate, if lower than the weighted average of those on your credit cards, would result in less interest paid over time. This saves you money and helps you pay your debt off faster.

Importantly, a credit card consolidation loan is different from a credit card settlement. Credit card settlements force you to default on your credit accounts and offer the chance to pay a lower settlement amount to satisfy your debts. This process may harm your credit.

On the other hand, credit card consolidation is a safe (and often easy) way to pay off credit cards with a single personal loan. If you can avoid charging additional purchases to your credit cards , you’ll be well on your way to pulling yourself out of high-interest consumer debt. 

Some benefits of a credit card consolidation loan:

1. Get a fixed rate that won’t go up.
2. Make one payment per month instead of paying multiple cards with different due dates.
3. Have a known payoff date for when your loan is finished.

Is credit card consolidation right for me?

Not everyone will find the terms of a credit card consolidation loan to be in their best interest. Consolidation may help:

  • If you’ve been carrying a balance on one or more cards for most of the year (10 out of 12 months, for example), or
  • If you’re paying the maximum interest rate allowable by law on any of your cards

In the end, the best way to tell if credit card consolidation is the answer is to do the math. If you can get a lower interest rate with a consolidation loan—and pay it off in the same or less amount of time than it would take you to pay off your existing cards—then it might make sense to move forward with one.. 

Credit card consolidation loans are also perfect for anyone who needs a structured plan to get out of debt in a set amount of time. If you’re looking to buy a home in five years, for example, a consolidation loan with a 5-year term may get your debt paid off in time to bring your credit risk in the appropriate range for mortgage approval.

When to consolidate credit card debt

If you are struggling to make the minimum payments on your credit cards, or you find the interest rates untenable, then it may be time for a credit card consolidation loan. If you can only afford to make minimum payments on your existing debts, this could take you over 20 years to pay it all off.

The best time to consolidate your high-interest debt is sooner rather than later. This will almost certainly help you pay off your debt faster, since you could be subject to a lower interest rate and would only have to make one monthly payment. 

Other ways to pay off credit card debt

Credit card consolidation loans aren’t the only way to pay down credit cards. But they are certainly one of the more popular methods. Understandably so, since it’s typically a simple application process that offers a single rate for the life of the loan (not promotional or temporary), and would require only one monthly payment. 

Consolidation loans can also help simplify debt reduction for anyone tired of tracking balance transfer end dates and/or multiple payments each month. Before you decide, consider  the full suite of  options for credit card debt reduction:

Funding source Pros Cons
0% Balance Credit Cards
  • You may already be qualified
  • Balance transfers can be used to pay off other cards
  • Transfer fees may be high
  • Interest rates revert to prime or higher once promo ends
  • Promotional rates may encourage you to spend on new purchases
Withdraw Retirement Savings
  • Quick cash with no interest rate
  • Often don’t need to pay back
  • Will likely be taxed and penalized for early withdrawal
  • Less retirement savings for later
  • Miss out on valuable compound interest
Home Equity Loan
  • High chance of approval
  • Generally more reasonable interest rates
  • Home is put at risk as collateral for a loan
  • Application process can be long
Credit Card Consolidation Loan (also known as a personal loan)
  • One monthly payment
  • One interest rate
  • Doesn’t prevent you from charging credit cards again
  • Could get into more debt if loan is not used to pay off credit cards
Lifestyle Changes
  • Won’t cost any fees or interest
  • Can be good to prevent future debt
  • May take years to affect existing debt
  • Can have a small overall effect on your finances

How difficult is it to consolidate?

Compared to all the things you’re already doing to manage, pay off, and track your debt, applying for a credit card consolidation loan is quite simple! Once you’re approved, you’ll get the loan proceeds within a few business days, and you can choose to pay off your cards  any order you choose. The best part of a credit card consolidation loan is that it’s flexible and adaptable to your individual priorities and  goals.

What to watch for

While a consolidation loan is an excellent tool that can ease the burdens that high-interest credit cards can cause in your financial life, there are some caveats to consider. 

First, the loan doesn’t change your relationship with your credit card companies. It doesn’t negotiate your rates, close your accounts, or limit your ability to spend more in the future. Unfortunately, it’s still possible for you to put additional charges on the cards again..

Credit card consolidation is a good choice for consumers wanting to take total control of their credit card debt, but it cannot fix or prevent future poor spending habits.

Do I qualify for credit card consolidation?

While individual creditworthiness will determine if you qualify for a credit card consolidation loan, there’s an easy and fast way to look at your chances for approval before you apply. This would refer to as prequalification.

Upstart and other personal lenders and lending marketplaces typically offer pre qualification checks that won’t impact your credit score, but it’s important to confirm this information on the prequalification page before proceeding. Typically, prequalification can provide you information on how much credit you can pay off, the different terms and amounts you qualify for, and the APR for your loan.

How to Apply For Credit Card Consolidation

You can easily apply for a credit card consolidation loan online by submitting details about your income and/or education history. If you’re approved, you’ll see an array of offers with different APRs, term lengths, and monthly payment amounts.

On many sites, your credit score will only be affected once you submit an application for credit and choose to accept the loan and its terms. Once you have  final approval, you’ll typically have cash in your bank account within two business days to a week. After you have cash in hand, you can start making payments to credit card companies and get rid of that high-interest debt forever!

If mounting credit card debt has you up in the middle of the night, it’s time to take action. You’ll begin to pay down balances and start a life of simplified monthly-payments designed to get you back on track again. The right credit card consolidation loan can give you the fresh start you deserve!

This content is general in nature and is provided for informational purposes only. Upstart is not a financial advisor and does not offer financial planning services. This content may contain references to products and services offered through Upstart’s credit marketplace.

About the Author

Sam Swenson

Sam is a fee-only financial planner, CPA, and freelance writer. After nearly a decade in various Wall Street roles, Sam found a niche in creating objective, accessible, and actionable financial plans for everyday people. Sam has also published long- and short-form personal finance and investment planning content on various websites across the internet. Outside of work, Sam enjoys running, biking, reading, and philosophy, as well as spending time with his wife, daughter, and goldendoodle.

More resources you may be interested in

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How to Get Your Credit Card Debt into One Payment
7 of the Fastest Ways to Pay Off Credit Card Debt
What to Know About Debt Consolidation Loans

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