If you’re struggling with multiple high-interest credit card payments, debt consolidation may be an excellent opportunity for you. Debt consolidation is the act of combining multiple balances into one payment, which is easier to manage and with a lower interest rate and a longer period to pay it off. Debt consolidation isn’t for everyone and there are multiple avenues you can choose. When you are considering your options, think about it in terms of your credit score, complete financial situation, and how much you ultimately need to pay off.

Best Options

Balance transfer

Balance transfers are one of your best options for consolidating credit card debt. It works by moving high-interest debt to a single credit card, allowing you to centralize multiple lines of debt into one. When evaluating your options, you’ll notice there is a transfer limit that’s not always equal to the credit limit. If you have more debt to transfer than the allowed limit, it’s recommended that you start first with the debt that has the highest interest rate. The caveat of balance transfers is that you can’t move existing debt from one card to another from the same issuer or any of its affiliates.

Balance transfers often come with an introductory period of 0% APR, which allows you to make interest-free payments on your balance and ultimately pay off your debt faster. The promotional period for each card will vary, so consider an option with a longer timeframe to give yourself the best chance to pay it off.

Balance transfers are a great option, though there are some things you have to consider. To start, you’ll most likely pay a balance transfer fee that’s usually 2% to 5% of the amount you plan to transfer. Another thing to recognize is that your introductory period will end and the ongoing APR will be applied to any remaining balance. So you only save money if you pay off your entire balance before the introductory period is over. You also can forfeit your promotional rate by exceeding your credit maximum or missing payments. To get the most out of a balance transfer, you should stick to a rigorous payment plan and pay off your balance before any interest can accrue.

Debt management plan

A debt management plan (DMP) is not a consolidation loan. In fact, it isn’t a loan at all. A 3 to 5-year program, a DMP consolidates any unsecured debt into a single monthly payment that still belongs to your original creditors, it’s just paid through a credit counseling agency. If you are interested in a DMP, start with a credit counseling agency that will assess your financial situation and create a budget to help you pay off your debt. When looking for which agency to go with, watch out for scams and fraudulent organizations. Use the Better Business Bureau as a resource to check into the company’s background and confirm its legitimacy.

A DMP also lowers monthly payments by reducing your interest rates and fees, sometimes waving them entirely. The best part is, it does it without a loan. It also will ultimately have a positive impact on your credit because DMPs don’t allow inquires for new credit.

The fees associated with DMP vary state by state, though the industry average is around $75 a month plus a one-time set-up fee. Given that the goal of a DMP is to stick to a budget and work towards paying off your debt in the specified time frame, many debt management companies require that you close your credit card accounts, so you don’t add to your debt.

Person loan

You can also use a personal loan to pay off all your existing debt to simplify your finances, while also lowering your interest rate. It’s a standard way to reduce credit card debt. A study conducted by U.S. News found that of the 1,001 people surveyed, 56% of them used a debt consolidation loan to manage credit card debt.

Debt consolidation loans offer significant benefits. These loans have a considerably lower interest rate than credit cards, so you will be able to save money on interest if you have multiple high-interest balances. If you have a good credit score, you also may be able to enter into a flexible repayment program that makes payments more manageable. Consolidating into one account and leaving the original credit lines open, but unused, will result in a lower credit utilization ratio, which may ultimately increase your credit score.

If you do not have a strong credit score, you will not be able to secure a reduced interest rate. Meaning that even though you would have one payment, you would still accrue interest at a high rate and add to your debt. You may also be on the hook for added fees. Loan origination fees are upfront costs charged by lenders to cover the cost of preparing loan documents and processing the loan. It can be a flat rate or based on a percentage of the total loan amount.

Other Alternatives

Not everyone will be able to use a balance transfer, management program, or a personal loan to consolidate their debt. There are other options if you do not qualify for the first few methods, though they do pose a higher risk. You should only consider these methods after you have ruled out any other avenue.

401(k) loan

401(k) borrowing is essentially lending to yourself, so you don’t have to worry about going through a credit check or painstakingly comparing options. Typically this type of loan has a 5-year term period and much lower interest rates than credit cards, so you’ll pay it off sooner than other types of loans. You can borrow half of what you have in your 401(k) account, though there is a limit with $50,000 being the most you can borrow from your account, regardless of the balance.

There are strings attached to a 401(k) loan. The payments associated with this type of loan are fixed and generally taken out of your paycheck automatically. Which is both good and bad. It makes it easy to make your payments, as long as you have a job. However, if you plan to leave your job within the term period, you shouldn’t take out a 401(k) loan. According to the current tax law, if you leave or are fired from your job, you have until you file taxes to pay off the loan. If you default on your loan or leave your job, you will face a 10% early withdrawal fee. If you are 59 1/2 years old or older, early withdrawal fees are no longer applicable to you.

Home equity loan

Also known as a second mortgage, a home equity loan means that you are borrowing against your home’s equity to pay off your debt. The interest rate for home equity loans is lower than credit cards and there is a long repayment period that can result in more manageable payments. Finding your home’s equity is easy, just subtract what you own on your mortgage from what your home is appraised at. So if your home is worth $250,000 and you owe $200,000 on the mortgage, your equity is $50,000. You start repaying your loan immediately with fixed-monthly payments.


Home equity loans are considered risky because it uses your house as collateral. Meaning that if you miss payments, the lender has the right to foreclose on your home. You also have to consider the possibility of the value of your home dropping and you may end up owing more than what your house is worth. Before you choose to enter into a home equity loan, make sure you understand the risks and what it means for your finances.

Cash-out auto refinance

Following the same principle as a home equity loan, in a cash-out auto refinance, you borrow money against the equity in your car. If your credit is good, you may be able to secure a relatively low-interest rate. Putting your vehicle up as collateral poses a huge risk: You could lose your car if you get behind on payments. Only consider it after you have ruled out everything else. There is no collateral associated with credit card debt, so moving your debt from an unsecured source to a secured source cannot be done lightly.