Ultimate Guide to Credit Card Consolidation

By Upstart Content Team | Updated September 7, 2018
reading time 5 min read
Credit cards in a wallet - Upstart Personal Loans

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 and climbing interest rates. It may feel hard to get ahead when the minimum monthly payments are only enough to cover the high interest rates and don’t make enough of a dent in your outstanding balance.

What if you’re ready to get on a plan to pay off those balances, and fast? A credit card consolidation loan may be the answer for you.

What is Credit Card Consolidation?

With credit card consolidation, you take out a new personal loan and use that loan to pay off the balances on any credit card debt. Once your credit card balances are at zero, you can focus on making just one monthly payment to the consolidation loan company. The interest rates for your credit card consolidation loan, if lower than those of your cards, would result in less interest paid over time. This saves you money and helps you pay your debt off faster, too. You remain in control of payments to your creditors.

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 to pay a much lower amount as a way of “settling” with the card companies. This may harm your credit in the process. On the other hand, credit card consolidation is a safe and often easy way to pay off credit cards with a personal loan. If you can avoid charging purchases to these cards again, you will have effectively brought your balance on the accounts to zero. You also won’t be subject to the high-interest rates often associated with consumer credit cards.

Some benefits of a credit card consolidation loan:
1) Get a fixed rate that won’t go up on you.
2) Make one payment per month instead of paying multiple cards with different due dates.
3) Have a known pay-off day 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 are paying the maximum interest rate allowable by law on any of your cards.

The best way to tell if credit card consolidation is the answer, however, is to do the math. If you can get a lower rate with a loan (and pay it off in the same or less amount of time), consider how much a consolidation may save you over the next few years. 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 credit card consolidation with a 5-year term may get your debt paid down in time to bring your credit risk in a better place for a mortgage. Choose one with a 3-year term, and your payments will be larger, but your debt gets paid quicker!

When to Consolidate Credit Card Debt

If you are struggling to make the minimum payments, or you find the interest rate too high to manage, it may be time for a credit card consolidation loan. A credit card consolidation loan is a personal loan used to pay off credit card debt. If you can only afford to make the minimum payments on your credit cards, it may take you over 20 years to see that debt gone. Anyone wanting to stop giving so much money to credit card companies in the form of prolonged and expensive interest rates should consider consolidating sooner rather than later.

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. Because they have a simple application process, offer a single rate for the life of the loan (not promotional or temporary), and require one monthly payment, they can help simplify debt reduction for anyone tired of tracking balance transfer end dates and multiple payments each month. But before you decide, you should review some other possible options for credit card 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
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 are already doing to manage, pay off, and track your debt, applying for a credit card consolidation loan is quite simple! Once approved, you’ll get the loan payment within a few business days, and you can choose to pay off any cards in the order you choose. The best part of a credit card consolidation loan is that it’s flexible and adaptable to your individual priorities and financial goals.

What to Watch

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 the 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 charge up 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 credit-worthiness will determine if you qualify for a credit card consolidation, there’s an easy and fast way to find out before you apply. Upstart’s pre-qualification form will tell you in seconds if a loan could be in your future, along with how much credit you can pay off, all the different terms and amounts you qualify for, and what the APR for the loan will be. Your credit score won’t be harmed by filling out this pre-qualification form either.

How to Apply For Credit Card Consolidation

You can apply for a credit card consolidation loan easily online by submitting details about your income or education history. If you’re approved, you’ll see an array of offers with different APRs, lengths, and monthly payments. On many sites, your credit score will only be affected once you submit an application for credit and choose to accept the loan. Once you have the final approval, cash can be in your bank account within two business days. After you have the cash in hand, you can start making payment to credit card companies and get rid of that high-interest debt forever!

If mounting credit card debt has you waking up in the middle of the night, it’s time to take action to pay down balances and begin a life of easy 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

Upstart Content Team

The Upstart Content Team shares industry insights, practical tips, and borrower success stories to help people better understand the important “money moments” of their lives.

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