Should I Consolidate My Credit Card Debt?

Dear High Hopes,

You’re in luck — what you want is not at all too good to be true.

Consolidating your credit card payments down to one per month can save you a ton of stress when you’re dealing with debt accumulated across multiple credit cards. Whatever steps you can take to make debt less of a burden in your life, I recommend taking them.

The first step to focus on paying off credit card debt is to stop using the cards you want to pay off. The most straightforward option is to stop using credit cards altogether for a while, because that keeps you from having to manage a growing balance at the same time you’re trying to pay down an existing dbet.

But if you need to use a credit card to manage your household cash flow, the next best option is to consolidate your debt and choose just one card to continue to use. Make a plan that lets you pay off that active card each month (or week) while you make monthly payments on your consolidated debt.

To consolidate your credit card debt, take out a personal loan in an amount that’s large enough to pay off all of your card balances — called a debt consolidation loan. The No. 1 benefit of this kind of loan is that it leaves you with a single monthly payment instead of multiple. Personal loans also usually have lower interest rates than credit cards, so you might save money paying the debt off this way, too.

If it’s helpful, you can look for a loan option with a lower monthly payment than the total you’re paying to credit cards now. It might take you longer to repay it, but this can be a useful option if you need to free up cash each month while still making steady progress on your debt repayment.

Taking out a debt consolidation loan won’t hurt your credit score long term — it may even help. Paying off those outstanding credit card balances will lower your credit utilization, the amount of credit you use versus how much is available to you. Low credit utilization can have a huge positive impact on your score. As long as you stay current on payments, the loan is also a simple way to build good credit history.

To protect your credit score, keep your old credit card accounts open after you pay off the balances.

Keeping those cards open and unused contributes to the age of your credit history, the mix of types of debt you have and the amount of credit you have available, all of which can positively affect your score. You lose those benefits if you close them.

To avoid adding to their balance again, delete your credit card numbers from online accounts and stash the cards somewhere safe so you don’t have them on you.

If you have fair or poor credit — a score below about 570 — look specifically for debt consolidation loans for bad credit online or with a local credit union. Lenders do offer them; you just may have to settle for a lower amount and/or a higher interest rate than would be available with a higher score. Alternatively, you could ask a co-signer with a high credit score. (Make sure they understand this makes them equally responsible for the loan, and it impacts their credit history the same as yours.)

In the future, if you want to switch to a new credit card, consider a balance-transfer card. That’ll let you move your existing credit card balance to a new card, so you only have one payment to make as you use the new card. Balance transfers typically come with a fee, but they might also offer a 0% APR period when you can pay down your credit card balance without accruing interest.

Credit cards make it easy to accumulate debt that’s hard to track, pay down and manage. That can be stressful. Thankfully, you have options for simplifying that debt and reducing the burden it causes on your life.

Dana Miranda is a Certified Educator in Personal Finance®, author, speaker and personal finance journalist. She writes Healthy Rich, a newsletter about how capitalism impacts the ways we think, teach and talk about money.