Want to save money on interest while paying off your credit card debt? Consider a credit card consolidation loan.
There are a few ways you can do this, including a balance transfer, a debt consolidation loan, a personal loan or a peer-to-peer loan. You can learn more about your options in the guide below and decide which one is right for you.
Prosper Personal Loans
You could borrow up to $35,000 for a variety of purposes, with rates starting from 5.99%.
- Recommended Credit Score: 640 or higher
- Minimum Loan Amount: $2,000
- Maximum Loan Amount: $35,000
- Loan Term: 3 or 5 years
- Turnaround Time: 1-3 business days
- Simple online application process
- No prepayment penalties
How does credit card consolidation work?
A credit card consolidation loan combines your outstanding balances on your credit cards into one monthly payment. The benefit is that you’ll pay off your existing debts with those credit card companies and have a simplified payment process with just one lender. You could possibly save on interest payments too, since credit cards tend to come with higher interest rates than personal loans do.
Credit card consolidation could improve or hurt your credit depending on how you use it. If you’ve fallen behind and have been making late payments on your credit cards, consolidating them to one monthly payment could raise your credit score as your payment history improves. On the other hand, taking on a new loan, in general, could cause a short-term drop in your credit score because of the hard inquiry.
Compare personal loans for credit card consolidation
A selection of personal loans you can apply for
Use this table to compare the interest rates, loan amounts and eligibility requirements of top online lenders.
A selection of brokers you can speak to
One way to make sure you’re getting the best rate is to let a broker find a competitive rate for you.
Credit card consolidation case study
In other words, here’s what Matt’s credit card debt is like without consolidation if he only makes minimum monthly repayments:
|Credit card one||Credit card two||Both cards|
|Balance and rate||$4,500 at 19.99% APR||$3,200 at 13.24% APR||$7,700|
|Minimum monthly repayment||$90||$64||$154|
|Time it takes to pay off||43 years and one month||16 years and 8 months|
Here’s how much Matt saves if he takes out a $7,700 consolidation loan at 13.39% APR:
|Total repayment||Time it takes to pay off||Total savings|
What are your options for credit card consolidation?
- Credit card balance transfer. Card providers usually offer 0% APR for a limited period of time, allowing you to pay off your debt. Keep in mind the card isn’t necessarily free, with purchase APR and annual fees to consider.
- Debt consolidation personal loan. You can take out a larger personal loan and pay off your credit card balances using the funds. Some lenders also give you the option of paying your creditors directly, rather than you having to divvy up the funds yourself.
- Peer-to-peer loans. Also referred to as P2P loans, these are becoming a popular choice for people looking to pay off their credit cards. Apply for a loan online and it will be funded by one or a few “peer” investors.
- Debt consolidation companies. These companies work by negotiating with your credit card providers to reduce your interest rate, or lower your monthly repayments. You make a single payment, and the debt consolidation company will distribute the payment across your card accounts.
How can I decide which is the best consolidation method for me?
- What’s your credit score? Whether or not you have good credit will affect the interest rate you’re offered by lenders as well as your chances of being approved. Make sure the rate you’re given will save you money when you consolidate your credit card debt.
- How much debt do you have? The amount of debt you have may affect the credit you can apply for. Check the allowable limits on different accounts before you apply to ensure you can consolidate all of your debt. Other lenders may not be willing to take on your debt if it’s too large, so take this into consideration as well.
- Do you want fixed repayments or would you prefer flexibility? Different consolidation methods offer different ways to repay. For example, if you opt for a P2P loan, your payments will be fixed, whereas you can make variable payments and pay off more than you owe with a credit card.
When should you not consolidate your credit card debt?
There are a few instances when credit card consolidation may not be the right choice to pay down your debt. You may want to reconsider if:
- The new APR is higher than your current APR. This is a red flag, and would have you paying more debt.
- If it will hurt your credit score. Taking on more debt will generally damage your credit, though this should only last a short time. If you enlist the help of a debt consolidation company, you may notice your credit score suffer, so only consider this option if you already have bad credit or have considered other options.
- You haven’t checked the reputability of the debt consolidation company. Disreputable companies operate in the debt space, so it’s important for you to ensure you work with a company who works towards your best interest.
- Fewer accounts to worry about. By rolling several different payments into one, you should be able to manage your repayments easier.
- Doesn’t hurt your credit score. By consolidating your debts, you’re still only making payments on what you owe. You’re not increasing your limit.
- Relief from high APRs. If you have two credit cards at 20% APR or more, you’re rolling these into a smaller APR loan.
- Getting into debt to pay for debt. Getting new debt to manage old debt can be risky if you’re not prepared with a plan to pay it back.
- Secured loans may mean more risk. If you suffer a financial setback, you have your collateral to lose.
- Longer term debt. If you’ve consolidated your old credit card debt it’s usually rolled into a longer term loan. Your monthly repayments could be lower, but the interest paid over time could be higher.
5 tips to beat the credit card debt trap
Debt tends to stick around once you’ve picked it up — it’s like gaining weight. Use these tips to avoid getting into debt in the first place.
- Only spend what you have. Spending more money than you know you can pay back in the near future can make your credit card balance balloon. If you spent more than you can pay back in a month, make sure to reduce your spending in the next to pay it off quickly. Can’t resist the temptation? You might be better off sticking with a debit card.
- Avoid interest. Pay off your credit card balance in full each month. The longer you take to pay off your balance, the more difficult — and expensive — it becomes, thanks to mounting interest.
- Don’t spend everything you earn. Spending your last dollar can leave you vulnerable to piling on debt. Make and stick to a monthly budget to help manage your money.
- Save up. You never when an unexpected expense could come along and hurl you into a pile of debt. Be prepared by cutting out room in your budget to make a deposit into a high-interest savings account each month.
- Pay your bills on time. Protect your credit score by never being late on payments. That way, if you need to get another credit card — or take out a loan — in the future, you can get lower, less risky interest rates.
Have more questions to ask before you consolidate your credit card debt?
How many credit cards can I consolidate?
There isn’t a set limit of cards, but there will be a limit on the debt you can consolidate. Calculate the debt you have across all of your card accounts and calculate how much you can pay off as per your chosen method’s terms.
Will credit card consolidation hurt my credit?
Credit card consolidation could affect your credit in two main ways: placing a hard inquiry on your credit report and decreasing your credit utilization ratio. The first negatively affecting your credit score and the second positively affecting your credit score. A hard inquiry could cause a temporary dip your credit score when the lender pulls your credit report to evaluate your application. Your credit utilization ratio could go down if you payoff your credit cards with the consolidation loan but keep the credit cards open. A lower credit utilization ratio is associated with a higher credit score.
What do I need to know about credit card utilization when consolidating card debt?
Your credit utilization ratio is the total amount of debt you owe compared to the total amount of credit you hold. For your credit utilization ratio to have a good effect on your credit score, it needs to be within the 1%-30% range. So, if you hold a $10,000 credit card limit, you’ll only want a maximum of $3,000 debt on it. When it comes to opening a new account and consolidating your debt, your credit card utilization will gradually change. Remember to keep this in check as you consolidate.
Am I eligible for credit card consolidation?
This depends on the type of method you’re opting for and the lender you apply with. Check the minimum criteria that applies before you submit your application.
Can I get a secured loan for consolidation?
These kind of loans are secured to an asset or collateral that can be seized if you don’t make your repayments. You may be able to borrow more with a secured loan but the risks can also be higher if you struggle with repayments.