Key Takeaways

• • • Credit cards are useful tools, but balances can add up quickly.
    • Too much credit card debt can damage both your credit rating and your well-being.
    • Consolidating your card balances into one loan can help you manage repayment.
    • Carefully consider the positives and negatives of debt consolidation options.

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    Credit cards can be useful tools to help you buy what you need, whether you’re shopping in your neighborhood store or online. They’re easy to get if you have a good credit score, and they often don’t require you to put up anything as collateral.*

    However, for many people, using credit cards leads to debt that’s hard to manage. If that sounds familiar, you’re not alone. A 2023 survey revealed that 77% of U.S. households had some type of debt¹, and credit card debt alone adds up to $1.34 trillion². On average, each cardholder has about $6,699 in debt.²

    Too much credit card debt can hurt your budget and your credit score, but it can also cause a lot of stress. Over half of adults in the U.S. feel stressed about their debt, and 60% say it even leads to disagreement in their relationships.¹

    If you’re trying to save toward goals like retirement, a house, or college, paying off credit card debt can slow your progress. And missing payments could lead to even more serious consequences, like paying late fees, lower credit scores and eventually bankruptcy.

    Consider Consolidation

    If you have credit card debt on several cards, combining your balances into one loan, called credit card consolidation, might help. Instead of juggling multiple bills, you’ll only have to keep track of one. Plus, you could potentially pay off your debt faster if the interest rate is lower (though a lower rate is not always guaranteed). Before consolidating, make sure you can afford the new payment. And be sure to review your spending habits so you don’t end up with more debt while paying off what you owe. If consolidation seems like the right move, there are several ways to do it. 

    Balance Transfer

    With a balance transfer, you can move all your credit card debt to a new card with a promotional interest rate for a limited time. After the promotional period, the rate will go up. This option works best if you qualify for a new card and can pay off your total transferred balances during the promotional period. Keep in mind that there’s usually a fee for balance transfers, usually around 3% to 5% of the amount you move.

    Personal Loan

    Another way to consolidate credit card debt is with a personal loan. This lets you borrow money to pay off your credit cards, then pay back the loan with fixed monthly payments. Since personal loans don’t always require collateral³, you won’t need to offer anything in exchange for the loan. You can get these loans from banks or credit unions. Most personal loans include origination fees and feature terms from 12 to 60 months. Lenders look at your credit score, income and debts when you apply. If you have good credit, your rate may be less than on your credit cards, but if your credit score is low, your rate may be higher.

    Retirement Plan Loan

    Some employer retirement plans allow you to borrow money and pay yourself back over time. These loans usually have low interest rates and don’t require a credit check, which can help you reduce credit card debt and improve your credit score. But there are downsides. If you leave your job, you may have to pay the loan back quickly, and if you don’t repay the loan, you could face high fees. Plus, the money you borrow won’t be earning interest in your retirement account, which could slow your savings.

    Credit Counseling

    A debt management plan through a credit counselor can help you get back on track with your finances. Credit counselors can teach you how to avoid debt and manage your money better. Look for counselors with groups like the National Foundation for Credit Counseling or the Financial Counseling Association of America (both are recommended by the Consumer Financial Protection Bureau). Be sure to check their qualifications, fees, and services. 

    Be careful not to confuse credit counselors with debt relief or debt settlement companies. These for-profit companies claim to work with your creditors, but they can charge high fees and their practices may damage your credit.⁴

    Borrow from Your Home’s Equity

    If you own your home and have enough equity, you could use a Home Equity Line of Credit (HELOC) or a Home Equity Loan to pay off your credit card debt. Since your home is the collateral, the interest rate is usually lower than your credit cards. However, you may have to pay closing costs for the loan, and if you can’t make the payments, your home could be at risk of foreclosure.

    Think Carefully Before You Borrow

    Consolidating multiple credit card balances can make paying bills easier and might help you lower interest costs and pay off your debt faster. Before deciding, it’s important to explore your options and choose the best option for you.

     

    *Some types of credit cards may require a deposit that acts as collateral on the account. 

    ¹From Forbes Advisor https://www.forbes.com/advisor/banking/american-debt-and-the-mental-health-epidemic/

    ²From Fortune: https://fortune.com/recommends/credit-cards/average-credit-card-debt/

    ³Depending on the amount you want to consolidate, you may be asked for collateral. 

    ⁴ Source: https://www.cnn.com/cnn-underscored/money/ways-to-consolidate-credit-card-debt