At a Glance
Many people mistakenly believe they need professional help to consolidate credit cards. But you can pursue debt consolidation on your own if you’re willing to put in the time to research options and apply.
In this article, you’ll learn:
If you’re managing multiple debts and are feeling like you’re treading water, you’re not alone. A recent study showed that, on average, Americans have about $23,325 in debt excluding mortgages, with 19% of monthly income going toward credit card bills. Yikes!
One way to ease the burden of credit card debt is through debt consolidation. And the good news is, you don‘t always need to work with a professional to do it. We’re here to guide you and help you understand how to consolidate credit card debt on your own using the following options.
Options for Consolidating Credit Card Debt Yourself
If you’re ready to investigate consolidating credit card debt on your own, there are several options to consider:
1. Debt Consolidation Loan
Taking out a debt consolidation loan on your own is an option for those who are disciplined enough to stick with the repayment plan. However, consolidating debt isn’t going to resolve underlying issues with poor spending habits. It’s important before you use a personal loan to consolidate credit card debt that you’re committed to repaying that loan on time and in full.
2. Balance Transfer Credit Card
If your credit score allows you to qualify for a 0% APR balance transfer credit card, the best way to consolidate credit card bills may be to use a balance transfer credit card. That’s because an interest-free period can give you time to pay down a significant portion of your balance without getting hit with more charges.
3. Home Equity Line of Credit (HELOC) or Home Equity Loan
If you’re a homeowner with at least 15-20% equity in your home, using a HELOC or home equity loan is an option for debt consolidation on your own. With a home equity loan, you’ll receive a lump sum payout to repay creditors, then repay the loan with predictable monthly installments and a fixed interest rate.
If you use a HELOC for debt consolidation, it’s a revolving line of credit with a variable interest rate. That means you’ll take out what you need to repay creditors, then pay back the line of credit at your desired pace. But a HELOC also allows you to take out more money up to your credit limit, meaning it might be a poor choice for those who haven’t yet addressed issues with overspending.
4. Borrowing from a life insurance policy or 401(k)
Borrowing from a whole life insurance policy or 401(k) should be a last resort. That’s because you could get hit with significant fees, and you’ll be borrowing against money that’s set aside to support you later in life. Doing so could derail retirement plans entirely.
What is the Process to Consolidate Credit Card Debt?
Regardless of which option you choose the process to consolidate credit card debt on your own is straightforward.
- Research lenders and debt consolidation options. You will want to shop around for reputable lenders offering the best interest rates on personal loans, balance transfer credit cards, or home equity loans.
- Prequalify. Many lenders allow you to prequalify online in minutes. That way, you will know the anticipated loan amount and interest rate before you formally apply. Plus, getting prequalified for a debt consolidation loan won’t hurt your credit score.
- Apply. If you like the interest rate you see during pre-qualification, it is time to submit a formal loan application for whichever type of debt consolidation option you choose.
- Receive approval. If approved, you will receive notification from the lender and sign paperwork to finalize the loan.
- Pay off existing creditors. You’ll take the money received from debt consolidation and use it to pay off existing lenders. In some instances, the debt consolidation lender may work with creditors directly to process the payments.
- Begin repaying the debt consolidation loan. Now that the multiple debts have been settled, you can begin aggressively paying down the single monthly payment toward your new debt consolidation loan or credit card.
Related article: Credit Card Payments: How to Pay Off Your Bill
Benefits of Consolidating Credit Cards on Your Own
There are several benefits to consolidating debt into one payment on your own.
- Streamline financial management: Managing multiple debts can cause confusion and lead to late or missed payments, which can damage your credit score. But consolidating debt into one payment means only a single monthly payment to be made across all existing debts.
- Save money on company fees: Hiring a debt consolidating company could be an unnecessary expense if you feel comfortable handling it independently. Applying for a debt consolidation loan, balance transfer credit card, or home equity loan is a straightforward process that doesn’t require professional assistance.
- You may be able to consolidate debt faster: By removing the middleman and working directly with a lender, you may be able to get your debt consolidated and begin making your new monthly payments faster.
Can You Get a Credit Card After Debt Consolidation?
Whether or not you can get a credit card after debt consolidation depends on the type of debt consolidation you do. Consolidating credit cards on your own using a debt consolidation loan or balance transfer credit card will likely put no limitations on whether you can get a new credit card later. But certain types of consolidation like a debt management plan or debt settlement may put a hold on your credit report, so you can’t take out new credit for a set period.