We are a country that is drowning in credit card debt. Credit card balances in the United States totaled $420.22 billion in late 2018. The average American household with credit card debt has approximately $6,929¹ in revolving balances, which are balances carried from one month to the next. It can seem impossible to get out from under debt that has mounted that high but consolidating your credit cards for a lower rate may be a start. Here are some helpful tips to consider.

Article at a Glance

Consider consolidating your credit cards to climb out of credit card debt, pay lower interest and make more convenient payments.
Transferring to a lower interest card, taking out a loan or consulting with a non-profit consumer credit counselor are all possibilities.
There are dangers to consolidation, so be careful you do not put yourself in a worst position than that where you began.

Credit Card Transfers

Once people have a credit card, they often do not check again for the interest they are paying. Look for lower interest credit cards including ones with offers that may even provide 0% interest during the introductory period. You can save a lot if you transfer your credit card balances to lower interest cards.

However, if you are moving your debt to a card with an introductory offer, be sure to check how long the offer runs before normal the normal annual percentage rate begins. If the normal APR is high, you may want to avoid that card completely, in case you are unable to pay off the card during the introductory period or forget to transfer the balance once the introductory period is over. Also, check to see if the low introductory rate applies to new items you buy or only the transferred debt. Of course, if you are trying to pay off credit card debt, you probably should not be making new credit card purchases, but you should be fully informed. Finally, be aware there may be a low transfer fee and add that to your calculations when making your decision of whether or not to transfer.

Lower Interest Loans

There are various types of loans you can take out that probably offer lower interest than your current credit cards, but each has its own advantages and disadvantages.

Personal Loan: Taking out a personal loan may be a good alternative to transferring high interest credit card debt to a lower interest card. You are unlikely to find the extremely low or nonexistent interest rate of introductory card offers, but if you can’t pay off the card during the introductory period, you will usually find that a personal loan offers lower interest once that period is over. Personal loans often have an origination fee. Credit unions are prime candidates if you would like to research lenders for a personal loan.
401(K) Loan: It’s possible to take out a loan on your 401(K), and the interest will be lower than that of a personal loan. But there are risks:
There is a penalty if you cannot repay the loan.
You will owe taxes on what you cannot repay.
If you get a different job, the time the payment is due will be vastly accelerated, normally two months vs. five years.
Home Equity Loan or Line of Credit: A home equity loan will provide a lower interest rate than an unsecured personal loan. You could also take out a line of credit with your home as security. Of course, you must be sure you can pay off the loan, so you do not put your home at risk.

Non-Profit Consumer Credit Counselor

Non-profit credit counseling organizations enable you to make one payment to them, and they pay your creditors each month. They also help you to negotiate with your creditors. However, be careful not to get involved with scam companies that do not operate as non-profits. They may take your money and leave you in worse shape than you were before. You can find non-profit consumer credit counselors on the National Foundation for Credit Counseling website. Consulting with one of these counselors should usually be done after you have tried other avenues. Be aware that not all creditors participate in the consolidation process and the ones that do can change their minds. Debt consolidation is voluntary on behalf of creditors and you cannot force them to change the terms of the contract. Last, be sure to fully understand the negative effect consolidation will have on your credit score.

If You Consolidate Your Credit Cards, Take Care

Consolidating your credit cards can provide you with lower interest and the convenience of making one payment instead of paying many cards. But there is a danger. Once their credit cards are 0 balance, some people turn around and charge them up again. Consolidating your credit cards should be just one part of an overall budgeting plan that you follow closely.

If you’re struggling with credit card debt, set up a free consultation with one of our debt professionals. There are no obligations, it’s entirely confidential, and the consultation is free. See how we can help you.