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How To Consolidate Credit Card Debt

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Credit card consolidation refers to merging all your existing debt into one loan, which is different than restructuring your debt, which refers to renegotiating the terms or amounts of your debt. Using credit card debt consolidation as a debt management tool gives you just one monthly payment to make and can help you pay off credit card debt once and for all.

Read on to learn the best ways to consolidate debt and how each option could affect your credit score.

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Consolidate With a Personal Loan or Debt Consolidation Loan

Many banks offer personal loans, and some banks lump debt consolidation loans into this same category. Credit card consolidation loans and personal loans can be unsecured — you don’t have to put up any assets as collateral for an unsecured personal loan — whereas others are secured by assets or property, such as a car or home.

Pros of Using a Loan to Consolidate Credit Card Debt

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Cons of Using a Loan to Consolidate Credit Card Debt

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Consolidate With Balance Transfer Offers

Credit card companies sometimes entice you to transfer balances from your high-rate credit cards. Balance transfer credit cards typically offer a special interest rate for a certain period, as long as you pay on time. You make at least the minimum payment each month on your balance transfer card, but you can always pay extra to become debt-free sooner.

Pros of Using a Balance Transfer Card to Consolidate Credit Card Debt

Cons of Using a Balance Transfer Card to Consolidate Credit Card Debt

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Consolidate by Borrowing Against Your Home or Car

You can pay down or pay off your credit card debt with a loan that’s secured by your house or car. You’ll need to own your car outright or have at least 20 percent equity in your home to qualify.

Pros of Borrowing Against Your Home or Car to Consolidate Credit Card Debt

Cons of Borrowing Against Your Home or Car to Consolidate Credit Card Debt

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Repay Credit Card Debt With Retirement Money

You can tap into your retirement nest egg to pay down credit card debt. With an IRA or 401k, you can withdraw money penalty-free if you’re at least 59 ½ years old. Alternatively, your employer might allow you to take a five-year loan against up to 50 percent of your vested 401k account balance.

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Pros of Using Retirement Funds to Consolidate Credit Card Debt

Cons of Using Retirement Funds to Consolidate Credit Card Debt

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Consolidate by Borrowing From Friends and Family

Borrowing from family and friends offers the widest range of options because your family and friends aren’t bound by the same formalities as a bank. But you should put everything in writing so there’s no disagreement later.

Pros of Borrowing Money From Friends or Family to Pay Off Credit Card Debt

Cons of Borrowing Money From Friends or Family to Pay Off Credit Card Debt

Choosing the Best Option for You

Before you hastily dive into more or different debt, weigh the pros and cons of the different credit card debt consolidation options carefully. Everyone’s situation is different, so another individual’s best way to consolidate debt might not be a realistic option for you.

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Last updated: Oct. 22, 2021