What Is Credit Card Debt Consolidation and How Does It Work?

Between rising prices on everyday items and higher credit card interest rates, it’s possible for credit card debt to get out of hand. In fact, the average credit card debt per American in February 2025 was $6,455.¹

If you’re dealing with one or more high-interest balances and can’t seem to make progress paying down the principals, one option to look into is credit card debt consolidation. Learn more about your credit card debt consolidation options, the risks and benefits of each and how to move forward with the strategy that’s best for you.

What Is Credit Card Debt Consolidation?

Credit card debt consolidation involves taking existing debt from one or more cards and transferring it to a new loan or line of credit. There are different methods of consolidation, including taking out a personal loan, performing a credit card balance transfer and using a debt management plan.²

Should you consider consolidating debt?

Though credit card debt consolidation has the potential to lower your overall interest cost, simplify your finances and help you conquer your debt, timing and individual circumstances play a big role in how effective it can be. Some possible scenarios in which you might consider debt consolidation include the following:³

• Your credit is strong. In order to get new credit (whether it’s a loan or another credit card) with a favorable interest rate, you’ll need to have strong credit scores.
• You are carrying a big chunk of high-interest debt. If you only owe a few hundred dollars on a couple of credit cards, it may not pay to move those balances to a consolidation product. For starters, there are usually fees involved, and opening new credit lines should be done sparingly to maintain your credit health.
• You’ve crunched the numbers, and they work. Before you consolidate debt, you should have a good handle on how much your new monthly payment will be and if it fits with your budget.
• You want to streamline several balances to one monthly payment. One of the key benefits of consolidation is moving all of your debt to one lender and then making one payment per month. Ideally, that monthly payment will be more affordable for you, while also allowing you to pay less interest.
• You have a plan moving forward. Debt consolidation takes discipline, and a commitment to stick to a new budget. If you proceed to run up new balances on the old cards after moving the balances over, you will end up with more debt than before.

There are also situations for which debt consolidation may not be the best option. Here are some examples:³

• Your credit score needs improvement. If you can’t qualify for a lower interest rate, then you won’t be saving any money or fast-tracking your payoff progress.
• Your balances are not that big. Before you start moving money around or opening new lines of credit, try out a DIY debt payoff strategy instead. A popular one known as “debt avalanche” is focusing all of your available income (after your household bills are paid) toward the highest interest card balance while paying the minimum due on your other cards. Once you pay the first balance off, then shift to the next highest rate card and repeat.⁴
• You’re not sure if you can afford the new product’s payment plan. If your income is not steady or you are really struggling, it might make more sense to seek credit counseling or call your creditors directly to discuss other options.

Common Ways to Consolidate Credit Card Debt

To consolidate credit card debt, there are a few options to consider. The most common ones are:

1. Personal loan

One of the more popular ways to consolidate debt involves a personal loan that allows you to pay off all of your existing debt and then make one monthly fixed payment for a set term.⁵

Here are some of the benefits and drawbacks of a debt consolidation loan:⁵

Pros

• You have a clear end date to get out of debt.
• It should be possible to find a personal loan with a much lower interest rate than credit cards.

Cons

• You sometimes have to pay origination fees.
• Qualifying for a personal loan and favorable rates requires a strong credit score.
• The longer the loan period, the more you’ll pay in interest over time.

2. Balance transfer credit card

A balance transfer credit card offer usually has a 0% introductory annual percentage rate (APR) that lasts for a year or more. This gives you the opportunity to pay off some or all of your balance with no additional interest charges.⁶

Here are a few advantages and disadvantages of a balance transfer credit card:⁶

Pros

• Paying your full transferred balance before your promotional period ends can save you lots of money.
• Some balance transfer cards may have other rewards and perks to benefit you beyond the 0% APR offer.

Cons

• There is usually a balance transfer fee of 3% to 5% of the transferred amount.
• Depending on the credit line you are approved for on the new card, you may not be able to move your full balance(s) over to the new card.

3. Debt management plan

If you feel like you need guidance and assistance in paying down your debt, you could work with a nonprofit credit counseling agency to set up a debt management plan. The way it works is you make one payment to the credit counseling organization and they make the payments to your creditors on your behalf. They can also sometimes negotiate with the creditors to lower your interest rate.⁷

Here are some of the upsides and downsides of a debt management plan:⁸

Pros

• One fixed payment simplifies your finances.
• You don’t need strong credit to qualify for this service.
• As long as you make your one payment, it ensures that your creditors will be paid.

Cons

• There may be a fee for this service.
• If you use a debt management plan, it will be mentioned in your credit report, which could be a red flag to future lenders.
• You’ll lose access to the credit accounts you’re paying off, which could impact your credit utilization.

Does Credit Card Consolidation Affect Your Credit Score?

Consolidating your credit card debt can impact your credit score in a few ways. Here's how your score might be affected:³

• Credit utilization. One of the bigger factors in your credit score, this refers to the percentage of available credit you are using. If you significantly lower your credit utilization on your credit cards by consolidating to a personal loan, it can increase your credit score. Likewise, if you open a new credit card and transfer your balances, you’ll have additional available credit and the same amount of debt, so your utilization will decrease. It's important to note that even if you don’t plan to use your old cards after you transfer the balances, do not close those accounts since the loss of that available credit will increase your utilization.
• New credit. Whenever you apply for a new personal loan or credit card, the lender has to do a hard pull of your credit reports. This temporarily drops your score.
• Length of credit. The average age of your credit accounts is a factor in your credit score, so when you open a new one, it can cause a small score drop.

Factors to Consider When Consolidating Debt

When comparing consolidation options, think about your ability to qualify, short- and long-term benefits and the costs. Ask yourself the following:

• How is your credit score? This will determine if you will have access to competitive interest rates or be able to qualify for a new credit card.
• What will my new interest rate be compared to my current one? Your aim should be to lower your interest rate as much as possible so you can pay more toward the principal and pay off debt faster and with less overall cost.
• Are there any fees? Even if you lower your rate, factor in what your up-front fees will be since they will be added to your balance owed.
• Do the repayment terms work for me? For loans, see how different term lengths impact your monthly cost and the overall cost of the loan. For credit card balance transfers, divide the balance total plus the fee by the number of months in the promotional period to see if you can afford that monthly payment.

Consolidation Has Benefits Under the Right Conditions

Debt consolidation can be an effective way to speed up your debt payoff, save money on interest and improve your credit health, but it’s not always the best solution. Before you consolidate, assess your financial situation and your goals and then compare debt consolidation offers to see if it’s worth moving forward.

Frequently Asked Questions About Credit Card Debt Consolidation

Do you still have questions about credit card debt consolidation? Here are answers to some commonly asked questions on this topic.

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Author Bio

Dawn Papandrea is a journalist with more than two decades of experience covering personal finance and consumer issues. She has written for leading financial publications and organizations, including U.S. News & World Report, Investopedia, Bankrate and others.