11 Must-Know Tips for Consolidating Credit Card Debt
Casey is a reformed sports journalist tackling a new game of financial services writing. Mike Francesa once called her a “great girl.”Read full bio
At a Glance
The average American has four credit cards and about $8,398 in credit card debt.1 If you owe money and want to consolidate or pay off your debt, here are some tips for you to get started.
- Try to avoid credit card debt
- How to consolidate credit card debt
- Debt affects your credit score
- Try to negotiate a payment agreement
- Get credit counseling
- Avoid debt settlement companies if you can
- You can’t get locked up for not paying your credit card bill
- Avoid using your cards
- Know the difference between unsecured and secured debt
- Look out for fees
- Know the right time to consolidate
1. Credit card debt is avoidable
If you charge only what you can afford and pay the bill in full every month, credit cards can be a great payment tool instead of a revolving door of debt. You can even make money off of your credit cards as most offer cash back, travel rewards, and other perks.
2. There are options for consolidating credit card debt
Debt consolidation is a possible strategy for those overwhelmed by credit card debt. Consolidation lowers costs by cutting interest rates and monthly repayments. There are a couple of main options for consolidating credit card debt, including:
- A balance transfer credit card, which consolidates credit card debt by moving your existing balances to a new balance transfer card. These cards offer an 0% APR introductory rate on transfers, which gives you a limited time to pay off the debt without interest.
- Debt consolidation loans allow you to take out a loan at a low interest rate, and you can use those funds to pay off your credit card balances. Then, you’d repay the loan over time. This helps save you money on interest and can get you out of debt faster.
Simplify your debt payments with a debt consolidation loan
Don't worry, this won't affect your credit score!
Read More: How to Consolidate Credit Card Debt
3. Debt affects your credit score
There are five components that make up FICO credit scores, used by the three major credit bureaus (Experian, Equifax, and TransUnion):
Experts recommend you keep your account balance (i.e., how much you owe) under 30% of your available credit limit. If you have a $15,000 credit limit, you don’t want your balance to exceed $4,500. Many experts suggest keeping your outstanding balance, or credit utilization, as close to zero as possible.
Late or missed credit card payments can also drop your credit score, and negative marks stay on your credit reports for seven years.
4. Contact your creditors for help
Creditors are under no obligation to accept less than the minimum payment. But it’s possible to come to a payment agreement that’s more manageable for you with your credit card company. Be sure to contact your creditors before your accounts have been turned over to a debt collector.
5. Seek credit counseling
If that doesn’t work, a credit card counseling organization can help you develop a debt repayment plan. Reputable agencies will provide free information about their services without asking for details about your financial situation. If an agency asks for personal information right away, consider it a red flag and find another.
The Federal Trade Commission (FTC) offers detailed advice on choosing a credit counselor that’s right for you.
Related: 5 ways to spot credit counseling scams
6. Use caution around debt settlement companies
Talking to your credit card company to negotiate a payment plan is likely your safest and best bet. But there are debt settlement programs that can assist for a fee. The Federal Trade Commission warns of working with companies that:
- charge any fees before it settles your debts
- guarantees it can make your unsecured debt go away and other suspicious offerings
Investigate any debt relief service before getting involved with them and be sure to get everything in writing. Check them out with your state’s Attorney General and local consumer protection agency to see if there are any complaints against them on file.
Debt services organizations must give you the following information before you sign up:
- Price and terms: The company has to disclose any fees and conditions involved in its services
- Results: The company must tell you how long it will take for it to make an offer to each creditor for a settlement
- Offers: The organization must reveal how much money you have to save before it will make an offer to creditors on behalf of you
- Non-payment: If the organization requests that you stop making payments on your credit card bills, this is a red flag. The company must tell you about any possible negative consequences you may face if you stop making payments.
7. You can’t go to jail for not paying your credit card bill
While you can’t get locked up for not paying off your credit card debt in the United States, you can face other legal ramifications. Depending on what state you live in, you can be sued or have a lien placed on your bank account and/or estate.
8. Avoid using your credit cards
While you’re focusing on paying off your credit card debt, you should avoid using your credit cards and continuing to add to the debt. New charges can just set you further back from your goal, especially until you’re able to get your debt and budget under control.
While figuring out which consolidation option is right for you, it’s important to create and stick to a budget. This can help you avoid relying on your credit cards for purchases and other needs.
9. Know the difference between secured and unsecured debt
Credit card debt is unsecured, which means it is not backed by collateral or assets like your home or car. Secured debt is backed by this collateral, so if you default on a secured loan, you could lose that asset. While secured loans may have a lower interest rate, it’s important to use caution when applying to avoid the chance of losing your assets.
10. Look out for fees
Most consolidation options have some fees associated with them, and that’s normal. This could include an origination fee or balance transfer fee. However, more fees means the more you are paying for your debt. So, do your best to avoid high fees and other penalties when possible. Be sure to understand all fees and costs associated with your consolidation option before committing and compare options to find the lowest fees you can.
11. Know when it’s the right time to consolidate your credit cards
When you have balances across multiple credit cards, managing their due dates and payments can be tricky. One sign it’s the right time to consolidate is if you’re having trouble managing your card payments, which can lead to late fees and accumulated interest. It can also be the right time if you have a high credit score (670 or above) because the higher your score, the lower interest rate you can get on your consolidation option.
Finally, if you think it will take at least six months to pay off your debt, it may be time to consolidate since it can save you money on interest and help you pay off debt faster.
Ways to pay off credit card debt
If you do find yourself in credit card debt, there are several strategies you can use to pay off your debt. These include paying more than the minimum balance, the snowball method, and the avalanche method.
Here’s a more complete look at how to get out of credit card debt.
How to pay off credit card debt fast?
It’s easier to pay off credit card debt faster when you’re organized and focused. Start by outlining each debt, how much is owed, and the interest rates. Then, target one debt at a time using either the debt snowball method or debt avalanche method, focusing on paying off the highest total or the highest interest rate first, then moving to the second highest, and so on until they are all paid off. Or, explore consolidation options to make managing your debt easier.
How to make extra money to pay off credit card debt?
There are many ways to make extra money to pay off credit card debt. Start by saving money that you’re currently spending. Create a budget and cut out unnecessary spending, and find ways to lower your other expenses. Starting a side hustle, selling items you no longer need, getting a second job, investing, or making money from home are all great options.
Read More: How to Make Extra Money to Pay Off Credit Card Debt
Should you use your 401(k) to pay off credit card debt?
There are tradeoffs to using your retirement savings to pay off your credit card debt. Compare the amount of debt you have and the interest you’re paying on it to the amount you’d lose from your 401(k), including taxes and fees, and the interest you’d earn on that. It may make more sense to consider other alternatives.
Read More: Should You Use Your 401(k) to Pay Off Credit Card Debt?
How to consolidate credit card debt without hurting your credit?
The best way to consolidate credit card debt without hurting your credit is to use the new funds to pay off your old debt immediately. Avoid using your credit cards during this time and continuing to add to debt and be sure to make payments on time and in full each month. As the loan balance decreases, your score will increase.
Read More: Does Debt Consolidation Hurt Your Credit Score?
Divorce and credit card debt – who pays the debt?
You are contractually accountable for any debt that is in your name, even if your spouse was an authorized user or contributed to the balance. However, a judge can order you to pay a portion of it, especially if accumulated for household necessities. Each divorce is treated differently.
Read More: Divorce and Credit Card Debt
Tricks to paying off credit card debt
Other than consolidating credit card debt, other tricks include choosing a payment strategy and sticking to it, making more frequent payments, and automating your payments.These will help you get out of debt faster and save money on accumulated interest.
Read More: Tricks for Paying Off Credit Cards