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How to consolidate your credit card debt

If you are unable to meet multiple credit card payments as your interest payments increase or if you simply want to move from a credit lifestyle to a savings lifestyle, it may be time to consolidate your credit card payments so you can erase your credit card debt. Debt consolidation means to bring all of your balances to a single bill and it can be a useful way to manage your debt.

Your first step—before you commit to a credit card consolidation solution—is to understand your current credit. Once you know exactly where your credit card debt stands, you can find and then select a solution that meets your specific needs. As you move towards a zero balance, you can take steps to ensure that you maintain a healthy credit habit to keep balances low and credit scores high as your credit history matures.

  1. Know your current credit debt status
  2. Ways to consolidate your credit card debt:
    • Debt counseling service
    • DIY debt consolidation
    • Credit card balance transfer
    • Debt consolidation loans
  3. Build & maintain healthy credit habits


1. Know your current credit debt status

The first step is to take stock of just what you owe and what your monthly take home salary is. Start tracking what you owe and what you earn, to get a handle on what's coming in, going out, and how much is left over on a monthly basis.

Know your credit cards: what you owe, minimum payments, and APR

Whether on paper or with a spreadsheet, collect your most recent credit card balance statements and document:

  1. The total amount owed on each card,
  2. The current minimum monthly payments due on each card, and
  3. The annual percentage rate (APR) of each card.

Know your budget: track your income and bills

Next, collect recent pay-stubs to understand your typical monthly income (leaving out any bonuses or tips that you can't depend on each month).

Now, on the debt side, add to your list of credit card balances a collection of your recent monthly and annual bills. That'll likely include things like:

  • Rent, mortgage and other housing costs
  • Utilities, like water, gas, heating and electricity, broken down by average monthly balances.
  • Loans and insurance: Car loan and insurance, student debt payments and other personal loan or insurance costs
  • Subscription service payment (such as cable TV and cell phone bills)
  • Grocery and commuting bills
  • Education and child-care costs
  • And anything else that's a regular monthly payment, like gym memberships and public transport costs.

You can also load this information into an online budgeting tool, such as Chase's Budget Builder, to keep on hand for future reference. There are also plenty of budget apps online that are free and easy to use.

Once you have all of this, you'll have a clearer understanding of your total expenses and income, and how much credit card debt adds to monthly costs.

Know your balance: Can you meet your minimum payments?

Using your minimum credit card payments, add up each of your monthly credit card bills. Is your monthly bill total larger than your monthly income or does your income out earn your bills? Use your knowledge of your overall balance to select a credit card debt consolidation solution that fits your situation:

Credit card debt
consolidation solution
   Monthly bills >
   Monthly income                
Monthly income >
Monthly bills

Debt counseling service



Do it yourself: snowball method


Do it yourself: avalanche method



Credit card balance transfer



Debt consolidation loans




2. Ways to consolidate your credit card debt

Emboldened by your knowledge of your finances, you can begin to select the debt consolidation strategy that works best for you.

Debt counseling services

You may also find many options through debt counseling services, something many people turn to when they see that their credit card debt exceeds their income. Debt counselors can help you choose the option that makes most sense for your lifestyle and needs.

Advantages of debt counseling services:

  • Some debt counseling services provide no-fee or low-fee services, depending on your income.
  • Debt counselors will aim to consolidate all of your credit card debt into a single payment, making it easier to manage and include in a budget.
  • A debt counseling service that is accredited by the National Foundation for Credit Counseling (NFCC) can ensure that you get fair, legal, and properly priced help.
  • Debt counselors may also help you avoid losing your home, car, or other possessions to repay your debt. Once you commit to a repayment plan, your debt counselor might be able to help put a stop to debt collection letters and calls.
  • Meeting the repayment terms that a debt counselor sets may improve your credit score.

Disadvantages of debt counseling services:

  • Until you repay your debts through the approved debt counseling consolidation plan, you usually will not be able to open or apply for any new lines of credit or loans.
  • Some debt counseling services advise closing out credit cards when they have been fully paid off. But keeping cards open and active (even when you are not using them to make charges) could actually help to improve your credit score. 
  • Some debt counseling services require certain levels of income, expenses, and debt to qualify for assistance.
  • Service fees will likely apply over the course of your credit card debt repayment program, so be sure to ask what sorts of fees, penalties, and costs will apply to your account before you commit to anything.


DIY debt consolidation

For those with enough income to support credit card payments, there are a number of methods to choose from to reduce balances to zero.

Snowball method vs. avalanche method

There are two suggested ways to attack credit card debt on your own: the snowball method and the avalanche method. If you have tracked your credit card balances, minimum payments, and APR, either method is simple to understand:

  • The snowball method aims to pay all credit card balances at their minimum monthly payments but then suggests that you add any other available funds to pay off your credit card with the largest balance.
  • The avalanche method also suggests to pay off all minimum monthly payments, but then directs your additional funds to pay off your credit card with the highest APR.

With either method, when you have fully paid off either the card with the largest balance or the card with the highest APR, you reserve that same monthly payment and direct it at the next credit card in line.

This strategic approach can help borrowers with many credit cards, reducing the bigger problem cards (larger balance or larger interest rate) first and then pivoting towards the next-biggest problem card: consolidating your debts as you go.

Advantages of DIY debt consolidation

  • Either the avalanche or snowball method allows you to use your budgeted funds to attack your credit card debt.
  • DIY debt consolidation does not require additional commitments to new lines of credit or loans.
  • Managing debt repayment on your own helps to build a budgeted strategy for habitual savings that can continue after your credit card debt has been paid off.
  • Paying your credit card debt on time, keeping your paid-off accounts open, and reducing your balances versus your credit limits will all contribute to higher credit scores.

Disadvantages of DIY debt consolidation

  • It can be difficult to keep a constant track of regular payments if you have variable monthly income.
  • DIY debt consolidation is great for those who feel they can afford a campaign to pay off their debt, while still accruing interest rate charges on their existing balances. But it might not work if you are already struggling to meet minimum payments or your credit card balances.
  • DIY debt consolidation requires unwavering determination to pay off credit card balances, and an ability to consistently track and manage budgets and finances.
  • You will have additional available credit, which could lead to over-spending.


Credit card balance transfer

Transferring your balances can be a way to reduce the interest payments from your current credit cards, but any balance transfer should be done with great care.

If you know your current credit cards' APRs, it should be simple to identify a new credit card that offers both (1) a lower APR and (2) an ability to transfer existing balances. If you can earn approval for a new credit card that meets both conditions, you will want to ask the card issuer about any fees associated with a balance transfer: sometimes fees are based on the number of balances you transfer while other fees may be based on the dollar amount of the balances that you transfer. Understand what your particular balance transfer strategy will cost you before you commit to consolidating your debt through a balance transfer.

Introductory 0% APR credit cards are one of the most cost-effective ways to transfer an existing credit card balance, as they will not charge any interest against your account until the introductory period is over. When moving balances to this type of introductory 0% APR credit card, your goal should be to pay as much of the balance as possible before the introductory period ends and to not make any new charges on this new card —that will prevent you from adding interest charges to your new account.

Finally, avoid thinking of continually transferring balances to escape from paying your credit card debt. While your credit score may currently allow you to open new cards, a perpetual habit of opening new cards to transfer your balance will definitely drive your credit score down: which won't solve your credit problem. Think of balance transfers as a one-time window when you will commit every bit of income you can to reduce your credit card balances before the introductory period expires and interest rates kick in.

Advantages of a credit card balance transfer

  • Credit card balance transfers can move your current credit card debt from a high APR to a lower (or 0%) APR, reducing the amount of interest you will owe each month.
  • Once approved, the transfer of funds can be quick, allowing you to address your credit card problems immediately.
  • Transferring the balances on multiple cards to a single card is a simple way of improving debt management.

Disadvantages of a credit card balance transfer

  • When introductory 0% APRs expire, your entire balance can be charged interest, and often at a very high rate.
  • Balance transfers often require a balance transfer fee, which amount to 3-5% of the total amount you are looking to transfer.
  • Opening multiple credit cards in order to make balance transfers can reduce your credit score significantly, making it even more difficult to earn approval for a balance transfer credit card the next time around.
  • Your interest rates on balance transfer cards can reach even higher levels if you are more than 60 days late on a payment.
  • Most credit cards have a strict limit on the maximum balance you can transfer. Make sure that limit meets your debt consolidation needs before committing to a balance transfer strategy.
  • You may be tempted to use your new available credit, leading to additional credit card debt.


Debt consolidation loan

Like most lines of credit, debt consolidation loans use your credit score and income information to establish the amount of the loan, the interest rate, and repayment terms. Most debt consolidation loans will be distributed to pay your credit cards directly, allowing you to focus on the single repayment of the loan.

Debt consolidation loans will typically allow higher levels of borrowing than credit card balance transfer options and lower interest rates than most credit cards.

You will want to be certain that the loan's monthly payments are lower than your current total minimum monthly credit card payments, as well as a lower interest rate.

Advantages of a debt consolidation loan

  • Consolidates multiple credit card debts into a single loan payment, making it easy to manage and build a budget around.
  • Allows for higher borrowing limits, suited to consolidate large amounts of credit card debt.
  • Typically will offer lower interest rates than similar credit card options.
  • Some debt consolidation loans provide options for co-signers, which may allow the better credit of the co-signer to earn lower rates and better terms for the loan.
  • Prompt repayment of a debt consolidation loan can improve your credit score and, by paying off your existing credit cards, improve your credit utilization ratio.

Disadvantages of a debt consolidation loan

  • Debt consolidation loans may not have minimum credit score requirements but will base their interest rates and payment terms on your credit score.
  • When your debt consolidation loan turns your credit cards back to a zero balance, you may be tempted to use that credit, which can further your credit card problem.


3. Build & maintain healthy credit habits

You've finally reduced your credit card debt by taking one of the options above. Here's how you can keep it that way:

Automate your payments and pay your full balance each month

The largest factor in your credit score is your history of payments: keep them on time and you'll see your credit score slowly build. By automating your payments, it becomes even simpler to stay on top of your credit card debt.

Once you hit your zero balance—whether through a debt consolidation strategy or just careful debt management—convert your mentality of credit cards as free-money-you-don't-yet-have to monthly-debt-that-earns-rewards by paying off your balance in full at the end of each month.

Keep your credit utilization ratio down

Just because you have a credit limit doesn't mean you should hit it.

When the amount you owe in credit is well below the limits of credit that are extended to you, you drive down your credit utilization ratio. An unfavorable credit utilization ratio could cause your credit score to go down.

Make a monthly credit review date

Planning for the future isn't exciting, but living in the future with your wealth will be.

Set aside one day a month to pull out your account statements, credit card statements, and credit report and take stock of your accounts. By reviewing your credit report, you make sure that no errors are cheating you out of credit score points. By looking at your accounts, you can detect and document trends that can help you build an updated budget and plan for the future. And when you check out your credit card statements, you can gain insight into how credit cards make money off of you and begin to flip the script to start earning rewards from them instead.

Shop for cards that your better credit deserves

Find a credit card with a lower APR or a rewards program that matches your hobbies and cut up (but don't close!) your paid-off, high-APR cards. With the higher credit scores that come with debt repayment, you'll begin to earn approval for rewards cards that offer either cash back, travel discounts, or gifts. The true sign of great credit is when you spend less than what you earn.

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