When you have several different credit cards, each with a hefty balance and high annual percentage rate (APR), getting out of debt can feel like a challenge. A credit card consolidation loan combines all your high-interest credit card debts into one loan with one monthly payment.
Credit card consolidation can even help you get out of debt faster, so it’s good to understand exactly what it is and how it works.
A credit card consolidation loan is a personal loan you use to pay off your existing credit card debt. This way, you don’t have to worry about multiple due dates each month for various credit cards. You repay credit card consolidation loans in fixed monthly installments, typically with a fixed interest rate.
You may want to use a loan to pay down your credit card debt because it simplifies the repayment process, can potentially lower the amount of interest you pay, and gives you a clear picture of when your debt will be paid off. And unlike with a credit card balance transfer, you can avoid a balance transfer fee.
Just keep in mind that credit card consolidation loans can come with fees, too — for example, some lenders charge an origination fee to process your loan. An origination fee is typically a percentage of your loan amount (usually 0% to 10%), and it’s subtracted from your loan up front.
Eligibility requirements vary by lender, but to qualify for a credit card consolidation loan, most will usually want to see that you have:
Related: Learn more about getting a personal loan on Credible.com
You’ll generally need to follow these steps to get a credit card consolidation loan:
- Decide how much you need to borrow. Add up your balances by checking each credit card statement or account. Remember, if a lender charges an origination fee, it’ll be subtracted from your loan amount. Factor this in as you decide how much to borrow.
- Check your credit score. Some credit card companies and financial institutions allow you to check your credit score for free. You can also get a free copy of your credit reports weekly from AnnualCreditReport.com through the end of 2023.
- Compare rates. Platforms like Credible let you compare consolidation lenders in minutes so you can find the right fit for you. When you’re comparing lenders, consider factors like loan amounts, repayment terms, fees, discounts, and lender reputation.
- Fill out the application. Once you’ve determined which loan is the best for you, you’ll need to complete an application. Many lenders let you apply online, and some will even let you know if you’re approved the same day. You can also apply through your bank, credit union, though you may have to go to a branch in person.
- Receive your funds. If the lender approves your loan application, you’ll either receive the funds in your bank account, or the lender will pay off the credit card companies directly. Don’t forget to make payments to your new lender — setting up autopay can help if you tend to forget due dates.
Related: Learn more about getting a personal loan on Credible.com
If you’ve got a lot of credit card debt and need help paying it off, credit card consolidation loans offer a lot of benefits, including:
Credit card consolidation loans aren’t for everyone, and they do have some drawbacks:
Here are the answers to a few of the most commonly asked questions about consolidating credit card debt.
Refinancing and consolidation are two terms that mean essentially the same thing: taking out a new loan (with more favorable terms) to pay off your existing debt.
Refinancing usually focuses on snagging a lower interest rate for a single debt, while consolidation is focused on combining all of your debts into one. But the ideal end result is the same: a new loan with one lower monthly payment.
Credit card consolidation can affect your credit in a couple ways.
On the positive side, a credit card consolidation loan should boost your credit score over the long term, especially if you make consistent on-time payments. A credit card consolidation loan can also diversify your credit mix (the types of accounts you have open). Your credit mix makes up 10% of your FICO credit score.
If a credit card consolidation loan isn’t the right fit for you, you have other options, such as:
No matter which solution you choose, paying down high-interest debt is a smart move. Find the best terms so you can save money along the way.