How to Consolidate Credit Card Debt in 6 Easy Steps

By Sam Swenson | Updated February 15, 2023
reading time 8 min read
Woman is sitting at home and holding a black cell phone and credit card after she researches how to consolidate credit card debt.

Feeling overwhelmed by credit card debt? You’re not alone. The average U.S. household has around $5,315 in credit card debt. Thankfully, there are options available to help you get back on the right track and improve your financial situation.

Debt consolidation is a strategy that can help you eliminate your debt over time by consolidating all of your current credit card debts into a single sum with one monthly payment. Using this method can help you better manage your monthly budget and potentially qualify for a lower interest rate. 

However, credit card debt consolidation isn’t right for everyone. If done incorrectly, it could even worsen your financial picture. We’ll help you understand if this strategy is right for you, and outline the steps you can take to consolidate your credit card debt today.

Step 1: Understand your current financial situation

Before you can begin the debt consolidation process, it’s important to make sure that you completely understand your current financial situation. Totaling all your debts and seeing the final number may feel a bit overwhelming or even emotionally difficult. But it’s a critical first step towards getting out of debt.

Here’s a quick list of what you’ll want to note as you evaluate your finances:

  • The total dollar amount of all of your credit card debts
  • Your credit score and credit history
  • Your monthly income
  • The annual percentage rate (APR) on each of your credit cards

Step 2: Determine which method of consolidation is best for you

Knowing what your existing financial situation looks like will help you determine which credit card consolidation strategy is right for you. Let’s review the top strategies:

Balance transfer credit card

With a balance transfer, you can refinance your current high interest debts by transferring your existing credit card balances to a new credit card with a 0% introductory rate. This introductory rate is typically valid for 12 to 18 months. The strategy behind a balance transfer is that the borrower will pay off as much of their balance as possible during that introductory period, saving them a great deal of money in interest and other fees. The remaining balance after the introductory period will be charged a typical credit card interest rate.


  • A 0% introductory rate (APR) can help you save on interest charges


  • Most balance transfer cards require an excellent credit score of (740 or higher) to qualify
  • There is typically a balance transfer fee
  • Any balance not paid off during the introductory period is charged a higher APR

Debt consolidation loan

Another strategy is a debt consolidation loan. Here, you’ll take out a personal loan issued by a financial institution or online lender and use the funds to pay off your existing credit card debts. The benefit of this strategy is that personal loans generally offer a lower APR than credit cards. 

With some lenders, you may be able to prequalify to see what loan amount and rate you qualify for before formally applying and without impacting your credit score.


  • Lower APR than that of existing credit cards
  • Fixed monthly payments
  • Some lenders will directly pay your creditors for you


  • If you have a very low credit score, you might not be able to get a debt consolidation loan
  • Some lenders charge an origination fee 

Debt management plan

Another option for consolidating credit card debt is enrolling in a debt management plan. This type of program is a professional service offered by certified credit counselors. Counselors could help consolidate debt, offer affordable repayment programs, negotiate payment terms, and in some cases a longer payback period for your debt. If you’re ready to sign up for a debt management plan, be sure to look for one that is accredited by the National Foundation for Credit Counseling

Debt management plans are a favorable option for individuals with lower credit scores who may have trouble qualifying for other options. It’s important to fully understand the debt management plan before signing up, such as fees or negative impacts to credit score.


  • Fixed monthly payments throughout the loan term
  • Lower interest rates
  • Enrolling in a debt management plan will not impact your score


  • You may be charged an origination fee, monthly fee, or annual fee for the service
  • Depending on the debt amount and strategy you use, it can take up to 5 years to repay your debt

Higher-risk debt consolidation options

You might come across a few higher-risk options when considering consolidating your credit card debt. However, most financial experts will warn you to be cautious of these methods.

Let’s take a look at those options, and why you may want to avoid them: 

  • Home equity loan or home equity line of credit (HELOC). With a home equity loan or line of credit, you’re borrowing against the equity in your home. While there are no restrictions on what you can use these funds for, think twice before using this option for debt consolidation. With a home equity loan, your house is used as collateral on the loan. If you default, the lender could, in the extreme case, have the right to foreclose on your home. 
  • 401(k) loan. If you have existing savings in an employer-sponsored retirement plan, like a 401(k), you may be tempted to use these funds as a means to consolidate  your other debts. You can take out a loan against your 401(k); however, if you default on your payments, the amount you  borrowed will be taxed and penalized like an early withdrawal. You also won’t be earning interest on the funds you borrowed, which will limit your retirement account growth.

Step 3: Choose a provider for your method

Whatever method you choose, there are a few things you’ll want to think about when choosing a provider for your services. Whether you’re looking for a balance transfer card, a personal loan lender, or a debt management plan, each will offer its own terms and conditions. You’ll want to compare each one carefully against your other options. 

Understand their fees and terms

When choosing a provider, ask them to explain all costs and fees associated with their services. Many providers will have origination fees for which you’ll also be responsible. You’ll also want them to explain the terms of the agreement that you’ll be signing. 

For example, you’ll want to know if the loan or credit card is secured or unsecured. Having a secured term could mean the lender requires you to use a home, car, or another valuable item as collateral. You should also ask about the length of your repayment term.

Compare the offers

When comparing the different offers from each lender, you’ll want to choose the offer that best matches your budget and is most likely to help you reach your goals. 

Be sure to compare APRs, lender requirements, and other features and services the lenders can provide.

Decide if a bank or online lender is right for you

Consider whether using an online lender or a traditional financial institution is right for you. If you prefer talking to an individual face-to-face—or would rather deal with a local bank that you’ve  worked with before—you’ll likely be more comfortable going with a company that has a physical presence and real people to interact with. 

But if you prefer the convenience of applying for a loan with more convenient features, using an online lending marketplace like Upstart might be the better option for you.

Step 4: Make sure you understand (and avoid) common pitfalls

Debt consolidation may not be right for everyone; certain pitfalls can occur during the process.

Let’s take a look at some of the most common things to avoid so you can be successful in consolidating your debt.

    • Avoid making new charges. One of the most common issues individuals have when consolidating credit card debt is that they continue to make new charges on their credit cards. This can set you back even further in your goals and will ultimately make your debt situation worse. 
      • The best way to avoid this is to set a monthly budget that you are confident you can stick with. Your budget should accommodate all of your monthly bills, expenses, and debt payments. Establishing a budget will also help you find ways to cut back on your spending.
    • Be cautious about transferring unsecured debt to secured debt. Transferring your debt from an unsecured credit card to a secured loan can be risky if you’re not careful with your repayment strategy. Having to put collateral down for a secured loan means you could be at risk of losing a valuable asset if you find yourself unable to repay your loan.
  • Understand the difference between debt consolidation and debt settlement. These are two very different methods of managing  debt. Debt consolidation helps you better manage your debt by consolidating all your various  payments into one until you’ve paid your debt back. Debt settlement eliminates your payments almost entirely, but a big note of caution here: settling your debts will leave a negative mark on your credit report that will remain there for seven years. We suggest that you consider debt settlement only after you have exhausted all other options and that you use it only for debts that are in collections.
  • Continue to monitor your credit. Because errors can and do occur on credit reports, it’s important that you continue to monitor your credit report even after you’ve paid off  all your debts.. If you find any discrepancies on your credit report, be sure to report them to the credit reporting bureau immediately. Following your report closely will help you take control of your finances and understand the positive impact that paying off your debt can have.
  • Don’t be afraid to ask for help. It’s human nature to want to solve a problem on your own, but sometimes we need extra help. Don’t be afraid to ask for help when you need it. Financial advisors are available to assist you and can help you through the debt consolidation process.

Step 5: Consolidate your debt

Once you’ve chosen the right method for your needs and have selected a lender, it’s time to start consolidating and paying off your debts. 

Here are the steps in the process for each method:

Balance transfer card

  1. Apply for the new card. Once you’ve chosen the card that best fits your needs, you can start your application. Be sure to only apply for one card because applying for multiple cards can potentially negatively impact your credit score.
  2. Transfer your balances. Once approved and you receive your new card, the servicer should be able to assist you with transferring your existing balances over to the new card. You’ll need to give them the account information for each card, and the servicer will likely charge a fee for each transfer.
  3. Pay down your debt. Now that your credit card debts are consolidated into one single sum, you can begin paying down your debt.

Debt consolidation loan

  1. Apply for the loan. Once you’ve chosen the loan that best fits your needs, you can start your application and wait for approval.
  2. Pay off your balances. After you’ve been approved and have received your funds, you can pay off your existing credit card balances. Some lenders may even pay your creditors on your behalf.
  3. Continue making your monthly payments. Now that you’ve paid off your credit cards, you’ll just need to make sure you pay your lender every month through the end of your loan term. 

Debt management plan

  1. Contact a credit counseling agency. Once you’ve chosen a credit counseling agency, it’s time to set up a meeting to discuss your current financial situation and your long-term goals.
  2. Set your monthly payment. In addition to counselors helping to consolidate debt, offer affordable repayment programs, and negotiate payment terms, they could help set a monthly payment that fits your budget and needs. 
  3. Start your debt management plan. After you’ve set everything up, you’ll then make monthly payments directly to the counselor, who will distribute your funds to your creditors each month on your behalf. This is a typical plan but it may depend on your unique financial situation and who your creditors are.

Step 6: Monitor your progress and adjust as needed

Consolidating your credit card debt is only the first step in the long process of becoming debt-free. To be successful, you must change your financial habits and continue to monitor your progress over time. 

If you find that your chosen plan isn’t working for you, don’t be afraid to make changes. Debt consolidation is not a one size fits all process, and it may take time to find the option that works for you.

If you’re ready to start consolidating your debts, consider applying for a credit card consolidation loan through Upstart.

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

Ultimate Guide to Credit Card Consolidation
Credit Card Refinancing: What You Need to Know
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How to Get Your Credit Card Debt into One Payment

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