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Six Methods for Credit Card Consolidation

Credit card consolidation allows you to combine multiple debts into one, and can potentially help you save on interest. Here are some top methods.

August 18, 2022

This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.

Credit cards offer convenience, flexibility and rewards for your spending — but they can also lead to costly debt. The average American household has $6,270 in credit card debt. 

Considering that the average credit card APR is over 20%, that means the typical American household is spending more than $1,250 per year on credit card interest alone. 

There are a few ways to reduce interest costs, however. One way is to consolidate credit card debt. Here’s what you need to know about credit card consolidation.

What is credit card consolidation?

Credit card consolidation involves taking debt from multiple credit cards and combining them into a single monthly payment. Usually this means refinancing the debt to another type of loan — but it can also mean transferring balances to a single card. 

The main reason to consider credit card consolidation is to save money on interest. Some people may also consolidate just to simplify their finances by combining multiple payments into one. 

How does credit card consolidation work?

The basic concept is to take out a loan and use that loan to pay off your credit card balances. 

This eliminates your credit card debt and combines the debt into a new loan with a single monthly payment. 

Some methods work a bit differently. Credit card balance transfers, for instance, involve transferring debt from one credit card to another. More details of each credit card consolidation method can be found below. 

Methods of credit card consolidation

There are several different ways that individuals can go about consolidating their credit card balances. Here are six top options. 

Personal loan

A personal loan is a versatile loan that can be used for any purpose. They are available from most banks and credit unions. Personal loans offer certain benefits, like high borrowing limits and consistent monthly payments. They typically have lower interest rates than credit cards, although you’ll have to account for the cost of origination fees (often 1% to 5% of the loan amount).


  • High borrowing limits allow you to consolidate high balance credit cards.

  • Lower interest rates than credit cards.

  • Flexibility to use funds however you want to.

  • Single monthly payment.


  • Origination fees can add to the total cost of the loan.

  • Requires a good credit score to get a good rate.

0% balance transfer offers

A balance transfer is a way to transfer debt from one credit card to another. You can do this with most credit cards, but it’s most useful when you can take advantage of an introductory interest rate offer. 

Many banks offer to transfer balances at 0% interest for a limited period of time — often 6 to 18 months. This means that any debts you transfer to the new card will be charged 0% interest for that period of time. After that, they will accrue interest at the standard credit card APR listed on the new card’s agreement. 

Keep in mind that most cards have a balance transfer fee, typically of 3% to 5% of the amount you transfer. 


  • A way to pay 0% interest for a limited period of time.

  • Consolidate multiple balances into one card.

  • You may be able to transfer to an existing credit card you already have.


  • You can’t transfer more than your credit limit on the new card.

  • Not everyone will be offered these 0% interest promotions.

  • Balance transfer fees can be 3% to 5% and add to the total debt.

Home equity line of credit (HELOC)

A home equity line of credit, otherwise known as a HELOC, is a type of loan available to homeowners who have equity in their home. It’s essentially a way to borrow against the value of your home equity.

For example, if you own a $400,000 home and have $250,000 remaining on your mortgage, you have $150,000 in home equity. With a HELOC, you can borrow a portion of this home equity, and pay it back in monthly payments. 


  • Typically, lower interest rates than personal loans.

  • Credit score may be less important to approval than with other loan types.

  • Monthly payments are often lower because of long repayment periods.


  • Requires you to own a home and have home equity built up.

  • You can lose your home if you default on the line of credit.

Debt management plan

A debt management plan is a form of credit card debt relief. These plans are offered by nonprofit credit counseling agencies. The agency works with lenders to settle the debt, and you then pay a flat monthly payment to pay off your debt. 

These plans may be a good option for those who are struggling to pay off credit card debt. Importantly, credit score is not a major factor — so those with lower credit scores may benefit more from these plans. 


  • Can lower your interest rate.

  • Doesn’t affect credit score.

  • Fixed monthly payments.


  • There are startup fees.

  • Monthly fees can add to the cost (in addition to monthly debt payments).

  • Repayment plans often last 3 to 5 years or more.

401(k) loan

If you have a 401(k), you may be able to tap into it to consolidate debt. You will need substantial savings for retirement, so it’s usually not recommended to withdraw from your retirement accounts. But fortunately, some 401(k) plans allow you to take out a loan against the balance in your 401(k), without actually withdrawing anything. 

One interesting perk of a 401(k) loan is that the interest you pay actually goes to yourself. When you make repayments (with interest), both the principal payment and the interest payment are returned to your 401(k) balance. 

Note that you need a substantial 401(k) balance in order to utilize this — and not all plan providers offer the feature. 


  • The interest you pay is paid to yourself.

  • No credit score impact.


  • Requires substantial 401(k) balance.

  • Not all plans offer loans.

  • You may face significant penalties if you are unable to repay the loan.

Line of credit 

A line of credit is a type of loan that functions somewhat similarly to a credit card. You are given a certain credit limit and can borrow up to that limit. You can continually borrow more, until you reach your credit limit. This makes them a flexible option — and their interest rates may be lower than credit cards. 

Lines of credit can be unsecured (like a credit card) or secured. Secured lines of credit are backed by an asset you own — like your home or car. 


  • Flexible borrowing.

  • Lower interest rates than credit cards.

  • Combine multiple debts into one.


  • Typically requires a good credit score.

  • You risk losing your asset if you don't repay the line of credit.

Most banks and credit unions offer personal lines of credit. However, the Tally line of credit is specifically designed to consolidate credit card balances. 

Tally is an app that helps qualifying applicants save money on interest by utilizing a line of credit to consolidate credit card balances. Learn more about how Tally works

Wrapping up

There are several potential ways to consolidate credit card debt, and each has unique pros and cons to consider. Ultimately, the best option for you depends on your credit score, your level of debt and the options available in your situation. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.