8 Best Ways for How to Consolidate Credit Card Debt

What should you do if you find yourself overburdened with credit card debt and you are having trouble keeping up with all the payments? It may be time to consider debt consolidation to make your debt easier to manage, easier to track, and to potentially lower your monthly payments while you get back on track. I am a huge proponent of paying off your debt rather than just filing bankruptcy, so debt consolidation is something I preach about quite often. When I was in debt up to my eyeballs, I did all sorts of balancing acts to consolidate my debt to get it paid off, so I figured I could post about some to maybe help some readers out.

A big selling point for consolidation of debt is to reduce the number of bills coming into your house to a more manageable level. Rather than getting 4 credit card bills, all with their own balances and minimum payments, you can consolidate down to 1 (or 2, at most) bills that you can then make bigger payments on. Wouldn’t it be nice to have one bill that you pay $150 on rather than 4 bills with 4 separate payments? Thought so. Doing this also lets you see any progress you make on that singular debt, so it’s kind of a no-brainer just from the “encouragement” perspective. But how do you consolidate your debt? Well, there are a few different options.

1. Home owners can take out a home equity loan, which borrows against the value of their home, to consolidate their debt. By doing so you are basically putting your house up as collateral for the loan, so be sure to don’t default on payments. Since interest on this loan is tax-deductible, it is often a smart way of consolidating any credit card you may have built up.

2. Home owners can also do a “cash-out” refinance on their homes. This allows owners to refinancing and take some of the home value out to pay off their bills.

3. People with pretty decent credit could possibly open a new line of credit with a much lower interest rate and roll their debt onto that card. Granted, if you are in debt so bad you need to consolidate it, new credit may be difficult to obtain. But it is definitely something to keep in mind as you are looking at options, and credit cards are great for this because you don’t need to put anything up as collateral for the loan.

4. Watch for special offers of 0% interest balance transfers from an existing card. This is one of the most common ways of consolidating debt, and something I did quite frequently when I was working on paying off mine. I did many, many transfers over the years it took me to pay off the debt, but the effort was worth it because at 0% interest, I paid it off quicker.

5. Apply for a personal loan from your bank or credit union. Watch that interest rate to be sure it’s lower than what you pay now on your debt, but sometimes credit unions have great loan rates available for borrowers.

6. Borrow from your retirement money. I don’t recommend this at all, but for some people it may make sense. If you have a 401(k) plan, you can borrow against it. Keep in mind you cannot borrow money for retirement, so be really sure of what you are doing before signing on the dotted line.

7. Borrow money from a family member. This is a touchy subject for many, and I honestly would recommend against it unless the money you receive is a gift of some sort. Money issues can really pull a family apart, so be sure you know what you are getting into before agreeing to anything. If you know for sure you can pay off the amount borrowed in a reasonable amount of time, a no or low-interest loan from a family member could be feasible.

8. Contact a debt consolidation company. These can definitely be pretty shady, but I do know someone who used the NFCC, the National Foundation for Credit Counseling, to consolidate and pay off her debt. Organizations like this contact your creditors for you, negotiate payment settlements, and then set you up with a single monthly payment to pay towards the negotiated amount.

No matter the method, the most important thing you can do today with your debt is to get rid of it. While I find no problem with the responsible use of credit, carrying debt around can really limit your life and lifestyle. You can check out my previous series on getting out of credit card debt for more tips on getting that monkey off your back, and good luck to you on doing so. Debt be gone!

Photo credit: alancleaver_2000

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Comments (11)

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  1. Big Spender says:

    Don’t forget Peer-to-Peer loan sites like Lending Club and Prosper.com. It’s very easy to get personal loans funded at much lower rates than banks.

  2. Suzanne says:

    This is certainly a timely topic as many consumers are struggling with debt and need options. While I agree with many of your suggestions, I just wanted to clarify that the NFCC promotes the national agenda for financially responsible behavior and builds capacity for its Members to deliver the highest quality financial education and counseling services. That being said they provide a network of providers for consumers to use. Settlement which you refer to in the post is very different than credit counseling or debt Management plans. Here is a resource guide that outlines the differences.

  3. Briana @ GBR says:

    I got a debt consolidation loan from Lending Club and it’s a little frustrating because it automatically takes the money from my account, which means I can’t pay anything extra (unless I’m missing something). I wish I would’ve put it all on one card.

  4. David says:

    You’re absolutely right, Big Spender. I should have put that in there, considering I am a lender over at Lending Club!

  5. Regarding #8, I’d just like to add that NFCC is actually an association of credit counseling agencies/organizations. It’s members are the more reputable/accredited agencies. NFCC is an excellent resource to finding a good one. Another resource is AICCCA. Same deal. Also look for agencies that are accredited by the BBB.

  6. Mark says:

    Half of those suggestions are assuming the individual has ultimately CHANGED THEIR SPENDING BEHAVIOR! One of the WORST things I see people doing is using home equity or retirement to cover credit card debt only to turn around and run the credit cards right back up.
    I see nightmares with debt consolidation companies too. They can’t do anything for you that you can’t do for yourself and most of them are about as crooked as the payday loan places.

  7. In fact, a lot of people today are struggling with their payments and bills trying to make ends meet and to avoid serious problems. It’s rather difficult to take debt under control and repay it in the shortest period of time as most of consumers experience rather tough financial times. Debt consolidators are here to help you. They provide specific low interest debt consolidation loan that can be to be really helpful for people who find it really difficult to manage their personal finances themselves and cover the existing debt.

  8. Some additional points for # 8 (contacting a debt consolidation company) – (1) latest studies from the NFCC show that only 21% of people who enroll in these programs complete them. (2) It appears on your credit that you are enrolled in a debt management plan. Not something a lot of lenders want to see.

    Not saying this shouldn’t be considered, but it should definitely be a last resort and one considered along with other options such as debt settlement and bankruptcy.

  9. One way of consolidating your debt that this article does not cover is to simply call your bank. It’s a hidden secret that banks will work with you and have plans in-house designed to help you manage debt. These plans do not hurt your credit and can save you tons on interest and payments. Some companies will even help you pay off other cards. The first thing to do is call your bank, then consider these other options

  10. Just look up all of your interest rates from each card and write them on a separate list. Then note the new rates you are supposed to be given. If the new rate is lower than the average index of the old rate, then consolidating your credit card debts would make financial sense for you. If there are cards offering lower rates, then you don’t have to include them in your consolidation. And of course, if you want to consolidate your credit card debt, you should firstly look at all of your debt in details. Once you know what you have, it will be much easier to contact specialists to help you with your consolidation solutions.

  11. DT says:

    There are many consolidation agencies that will work with debtors to lower the overall payments with a good rate.