Should I Consolidate My Credit Card Debt?

Posted by Shaun Morgan in DebtFebruary 25, 2022(Last Updated July 28, 2022)5 min read
Key Takeaways
  • Debt consolidation is taking existing loans you already have and putting them into a different loan that is, in theory, easier to pay off in some way.
  • Your spending habits must change before considering a consolidation loan; otherwise, it won't help.
  • If a debt consolidation loan won't help your financial situation, consider talking to an attorney for additional guidance on how to handle the matter.
Are you ready to make some real money moves?

If you have a credit card balance or loan amounts of any kind, you’ve probably received offers to consolidate your credit card debt in the mail. You may feel like you are getting a new offer to consolidate your debt in the mail every other day.


But, getting mail doesn’t mean that consolidating credit card debt is right for you. On the contrary, consolidating your credit card debt can harm your overall finances. So it’s important to understand what debt consolidation is, what goes into consolidation, and when you should not consolidate.


What is Debt Consolidation?


Debt consolidation is taking existing loans you already have and putting them into a different loan that is, in theory, easier to pay off in some way. Generally, consolidation falls into two categories: 0% balance transfer and low-interest consolidation loans. 


Some credit cards will offer you a 0% introductory interest rate when you transfer your credit card balance to them. If you have high-interest rates, this can be a great way to pay down debt much faster for the 6 to 18 months of interest-free payments. 


As a word of warning, for many credit cards, you will owe the regular interest rate for the entire period you held the remaining balance on the credit card after the interest-free period ends. So, make sure you read all the terms and conditions before transferring your credit card debt.


According to Business Insider, low-interest consolidation loans take your interest rate from the average 16% interest credit card to something more manageable like, a 7% interest rate. It also puts your loan on a shorter repayment period, so instead of taking 20 years to repay a credit card by paying the minimum payment, it is now five years. 


Both of these options can be very beneficial for people who need to get their debt under control, but you need to understand what they're offering before you dive into a new loan. 


What Goes into Debt Consolidation?


Interest Rate


The interest rate is the only part of the loan that most people look at because it's what they advertise. A balance transfer credit card shows 0% interest in big and bold letters. It is eye-catching, but remember that rate is only part of the calculation. In addition, it is important to consider more than just the lower interest rate on a new loan.


While it may sound like it is always better to go from a higher rate to a lower rate, that isn’t always true, depending on the interest rate. The other parts of consolidation need to be included when considering the advertised lower rate. Furthermore, it would be best to always read the fine print on your new credit card that offers a balance transfer. 


Loan Term


The term of a loan is how long you will have that loan. Unfortunately, for credit cards, this is not readily available information. But you can figure out the “term” of your loan by using a minimum payment calculator. You just need to remember that this number depends on the interest rate and minimum payment you put in, and it assumes you are not putting anything else on that credit card. 


Image Credit: Hananeko_Studio /


For example, if you have $20,000 on a 19% interest rate with a minimum payment of 4% of the total value of the loan, it will take you over 16 years to pay off the loan by paying just the minimum. 


By consolidating your debt into a 7% loan, you could have it paid off over five years for a fraction of the payments. 


Total Monthly Payment 


Your total monthly payment is where you need to start crunching numbers. A lower interest rate and a lower term is great, but can you afford to make the change? Usually, the answer is yes, but going from a 16-year payoff to a 3-year payoff can drastically increase your monthly payment. 


Recommended Read: FICO Credit Scoring Model: How to Improve Your Credit Score


Especially if you have large amounts of debt, be careful not to make your situation worse by making your monthly payment outside your reach.




Most loans have fees to sign up for them, called origination fees. Consolidation loans are no different. So before you sign any paperwork, make sure you fully understand the fees to get your new loan.


A balance transfer might have a 3-5% fee associated with it. If moving your debt to a new credit card will save you less money than the fees, then it isn’t worth it. 


Recommended Read: 4 Credit Traps to Avoid


Total Debt Load 


It's important to know if your debt is manageable or has begun to be too much of a burden. If your total debt is so high that you can't make payments after consolidation, then it may be time to explore other options. An attorney may be the best option to figure out a debt management plan.


Credit Score


Your credit score matters when considering and qualifying for a debt consolidation loan. To be eligible for a new loan, you must have a semi-decent credit score. The lower your credit score, the worse term and rate you'll get on a debt consolidation loan.


If your credit score is low for any reason, the first step is to fix it before you consider loan consolidation.


Recommended Read: What is a Credit Profile and How Can I Repair My Credit?


When You Shouldn’t Consolidate Your Debt


In general, debt consolidation is a good idea for most people. If you can qualify for consolidation, then do your research and see if it makes sense for your financial situation.


However, if you consolidate debt without changing your spending habits then it won't help you. The first step is to stop spending more than you make. If you can get your spending under control, debt consolidation can help you in the pay-down process. 


Another thing to consider is that consolidation won’t necessarily save you from bankruptcy. If you are already so far in debt that bankruptcy is an option, you will need to consult an attorney about debt relief options.


How Can Debt Consolidation Relieve Your Credit Card Debt Burden?


Debt consolidation is a great way to get your payments under control and reduce the amount of interest you are paying on your debt. This doesn’t mean it will reduce your payment so that you can rack up more debt. If you don’t have your spending under control, consolidation cannot help you.


If you are under such a debt burden that you couldn’t reasonably pay down the minimum payment on a consolidation loan, then consider consulting with an attorney about debt relief.


What consolidation tool would you use? Please share your thoughts with us in the comment section below.


Main Image Credit: Hananeko_Studio /

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