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A Look at How to Consolidate Credit Card Debt on Your Own

Break the cycle of credit card debt with one of these consolidation options.

Justin Cupler

Contributing Writer at Tally

April 8, 2021

Credit card debt adds up quickly, and its high interest rates can seemingly put you into perpetual indebtedness. Debt consolidation can help pull you from this ongoing cycle and get you on a debt-free path. Plus, you can handle debt consolidation on your own, without seeking outside help from a credit counseling agency. 

We'll cover how to consolidate credit card debt on your own, your debt consolidation options, and how consolidating your debt impacts your credit score. 

Debt consolidation defined

Debt consolidation is taking multiple debts and paying them off with a single method. There are various ways to consolidate debt, which we will get to later, but the result is the same. In some cases, you can consolidate all your debt into one, but many times you're forced into consolidating only select debts and leaving others as they are. 

Debt consolidation has several benefits, and the first is it allows you to convert multiple monthly payments into just a single payment. This simplifies your personal finances and makes budgeting easier to manage from month to month. 

The second key benefit of debt consolidation is you generally use it to pay off high-interest debt with a lower-interest consolidation method. This reduces the amount of interest you pay and can even accelerate your repayment pace. 

How to consolidate credit card debt on your own

There are numerous ways to consolidate credit card debt, and each has its benefits and drawbacks. We'll cover these consolidation options, how each may impact your credit score, and their benefits here. 

Debt consolidation loan

A debt consolidation loan is a form of unsecured personal loan designed specifically for consolidating high-interest debt. "Unsecured" means there is no collateral the lender can repossess if you default on the loan. These are generally from lenders who specialize in debt consolidation, so they tend to eliminate a lot of the guesswork.

Debt consolidation rates can go as low as 5.99%, but they can also reach higher than most credit cards at up to 35.99%. Because of this wild fluctuation, shop around for the best deal.  

Many debt consolidation loans will automatically distribute the loan to your debts instead of giving you access to the money. Some even require this automated distribution to ensure you use the loan as intended. 

Debt consolidation loan pros:

  • Generally has lower APR than your credit card

  • Offers fixed repayment terms

  • May offer automated debt payoff

Debt consolidation loan cons:

  • Can sometimes have higher APR than a credit card

  • May require an origination fee and other lender fees

  • Usually requires good credit for approval

  • Given as a one-time lump-sum payment

Unsecured personal loan

You can also get a standard unsecured personal loan from a bank or credit union and use it to consolidate your high-interest credit card debt. 

An unsecured personal loan works exactly like a debt consolidation loan, but there will be no option for the lender to pay off your debts automatically. Instead, you must put the money in your bank account and pay the debts yourself.

Like a debt consolidation loan, interest rates can be as low as 5.99%, but they can also be prohibitively high at up to 35.99%.

Unsecured personal loan pros:

  • Generally has lower APR than your credit card

  • Offers fixed repayment terms

  • Can choose from a wide range of lenders

Unsecured personal loan cons:

  • May have interest rates far higher than a credit card

  • May require an origination fee and other lender fees

  • Usually requires for approval

  • Given as a one-time lump-sum payment

  • Won’t offer automated debt-payoff option

Home equity loan

A home equity loan is another credit card debt consolidation option. Like a personal loan, a home equity loan gives you access to a lower-interest-rate loan — current average APRs range from 3.25% to 7% — you can use to pay off some or all your credit card debt. 

There are a few distinctions that set a home equity loan apart from a personal loan. First, it is tied to your home's equity — the home's assessed value minus any mortgages or liens. If your home has no equity in it, you can't get a home equity loan. 

Second, this is a secured loan that uses your home as collateral. So, if you don't repay the home equity loan, the bank can foreclose on your home. 

Home equity loan pros:

  • Generally has very low interest

  • Offers fixed repayment terms

  • Has lower monthly payments due to longer repayment terms

Home equity loan cons:

  • May require an origination fee and other lender fees

  • Usually requires good credit for approval

  • Given as a one-time lump-sum payment

  • Limited by your home's equity

Unsecured line of credit

An unsecured line of credit is another option. It's similar to a personal loan in that it offers low interest rates relative to your credit cards. The key difference is it's a revolving credit line, meaning you can use it more than once. 

So, if you got approved for a $5,000 credit limit and had $10,000 in credit card debt, you could immediately consolidate $5,000 in debt. You can then consolidate the remaining $5,000 in debt as you pay down the balance on the credit line and your available credit increases.

Unsecured line of credit pros:

  • Generally has lower interest rate than a credit card

  • Offers flexible repayment terms

  • Offers a reusable line of credit for paying off multiple debts

  • Doesn’t need collateral

  • Doesn’t require perfect credit

Unsecured line of credit cons:

  • May have a higher interest rate than a personal loan

  • Takes longer to impact your credit score

Home equity line of credit (HELOC)

Like a home equity loan, a HELOC gives you access to low-interest cash based on the equity in your home — current APRs range from 1.99% to 7.24%. It also has traits similar to an unsecured line of credit, as the lender approves you for a credit line, and you can borrow as much or as little as you need. 

Plus, you only pay interest on the amount you borrow. So, if you get approved for a $50,000 HELOC and only need $25,000 to pay off your credit cards, you'll pay interest only on the $25,000.

Like a home equity loan, your home is the collateral for a HELOC, meaning there is the risk of home foreclosure if you default on payments. 

HELOC pros:

  • Has very low interest rates

  • Offers flexible repayment terms

  • Offers a reusable line of credit for paying off multiple debts

  • Has lower monthly payments due to longer repayment terms

HELOC  cons:

  • Risk losing your home

  • May come with additional fees

  • Often requires a good credit score for approval

  • Must have equity in your home to qualify

Balance transfer credit card

The final way to consolidate your credit card debt on your own is with a balance transfer credit card. Often, these cards offer promotional APRs for balance transfers. Sometimes, these promotional offers are as low as 0% APR for 6-18 months. That means there is no interest during that period, allowing you to pay off your debt quicker. 

You can transfer your higher-interest credit card balances onto these cards and pay as little as no interest during the promotional period.

These balance transfers aren't 100% fee-free, though. They usually include a 3% to 5% balance transfer fee that's applied to the transfer amount. So, if you transfer $5,000, you'll incur a $150 to $250 fee. 

That fee may sound steep, but if you're paying 19% APR on that credit card, you could shell out over $900 in interest charges in a year if you make just the minimum payments.  

Credit card issuers generally offer promotional APR deals to new credit card customers during an introductory period. However, some credit card companies offer these deals to existing customers to spur credit card usage.  

Balance transfer credit card pros:

  • Often includes 0% interest

  • Makes debt repayment planning easier

  • Works just like writing a check or making an online payment

Balance transfer credit card cons:

  • Often requires good credit to get approved

  • Have short promotional APR windows

  • May have too small a credit limit to cover all debts

  • May temporarily hurt your credit score initially

How consolidating debt impacts your credit score

In addition to lowering your interest rates and streamlining budgeting, building a good credit score is a key reason people get into debt consolidation. Here's how debt consolidation can impact your short-term and long-term credit score.  

Initial credit score dip

Your FICO credit score — the most commonly used scoring system — has five weighted factors, and 10% of that weight is "New Credit."

 "New Credit" includes all hard credit checks in the last 12 months and the number of recently opened new accounts you have. Too many inquiries and too many new accounts can result in noticeable credit score decreases. 

When you're shopping for a suitable debt consolidation offer, you likely have to go through a few credit history pulls. These will count as hard credit checks, which can cause a small credit score decrease — unless the lender specifically noted it was a soft credit check, and it wouldn't hurt your credit score. 

Also, taking on a new loan or another account — HELOC, balance transfer credit card, personal loan, etc. — to consolidate your credit cards will count as a new account. This new account may also have a small negative impact on your score.

Overall, you shouldn't see a huge credit score decrease, but you could see a 10- to 15-point decrease throughout the process of finding and opening a debt consolidation account.

Potential for a big boost upon consolidation

After that initial credit score dip during the application process, you could see a sudden credit score spike, but it depends on how you consolidated. 

If you used a personal loan, debt consolidation loan, home equity loan, or another installment debt — a debt with a fixed repayment term and predetermined payoff date — you may see a credit score spike. This is because FICO bases 30% of your credit score on "Amounts Owed," which includes your credit utilization ratio — your credit card balances relative to your credit limits. 

As your credit utilization ratio falls, your credit score may rise sharply. Yes, you still have the same amount of total debt, but the reduced credit utilization ratio can greatly impact your score. 

On top of lowering the credit utilization ratio, you are also adding an installment debt to your "Credit Mix," which is 10% of your FICO score. Credit mix looks at the number of revolving debts relative to installment debts. Revolving debts are things like credit cards and lines of credit, while installment debts are things like personal loans and home equity loans. The more even the mixture, the more positive the impact. 

If you consolidated your debts using a balance transfer credit card or a line of credit, you may not see this sharp upward trend. This is because you're replacing one revolving debt with another and not making as large of an impact on your credit utilization ratio. 

Long-term credit score growth

With the short-term credit score impacts out of the way, you can now realize the long-term impacts of debt consolidation on your credit score. 

First, always remember credit scores ebb and flow, so there could be random rises and falls here and there. As a whole, you should see a steady upward credit score trend as you pay down your debt consolidation account balance.

Also, you'll see larger increases periodically as the on-time payments to the debt consolidation account add up on your credit report. Your payment history accounts for 35% of your FICO score — the biggest impact — so you can build an excellent credit score over time.  

Simplify personal finances with credit card debt consolidation

There's a wide range of options for consolidating credit card debt on your own, including a debt consolidation loan, personal loan, home equity loan, unsecured personal loan, HELOC, and using a balance transfer credit card. Each one has its benefits and drawbacks. Some can even have a quick positive impact on your credit score, adding to their benefits. 

No matter which consolidation option works best for you, the sooner you start, the less interest you’ll pay over time and the closer you’ll be to debt-free.

If you decide an unsecured line of credit is the route for you, Tally can help.1 On top of offering a line of credit that usually offers lower interest rates than your credit cards, Tally also manages all your credit cards for you, automates payments, develops custom payoff plans, and much more. 

1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.9% - 25.9% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.