Everything you need to know before consolidating debt

Written by
Terms apply; see the online credit card application for full terms and conditions of offers and rewards.

Debt consolidation, a popular trend in the world of consumer debt, is it the magic bullet that will effectively rid your life of all problems with credit card debt?

Consolidation can be a great option for digging your way out of credit card debt, but be warned, consolidation is not a magic bullet. Consolidation is a tool which can be successful only if you are determined to make it work. Consolidation efforts may require a deep look into your current financial behaviors and some major changes may be in order. The consolidation process takes planning, determination, and a little elbow grease, but it is possible.

Why are you consolidating in the first place?

Consolidation should be, in most cases, a last ditch effort to help repay debts. Consolidation should not be a ‘go-to’, or a ‘plan B’ that resides in the back of your mind each time you swipe your credit card. Before moving forward with credit consolidation it’s important to assess why you are in this situation in the first place, and what you can do moving forward to avoid the situation again. Do these situations sound familiar?

Regular overspending

Overspending is a dangerous practice; to overcome a spending addiction requires a complete lifecycle change which can be corrected only by you. Consolidating debt for unresolved overspending habits is a temporary solution, a mere Band-Aid, that won’t be able to mask the real issue of money management.

Spend a month tracking every single expense — down to the penny — to see where your money is going. Then take the time, and maybe even help from a credit counselor, to setup a budget and a plan to stick with it.

An unexpected life crisis

Life happens, and sometimes in unexpected ways. We don’t’ always plan for major medical issues, job loss, or major car or home repairs – and when they strike, finding the funds to pay them off is not always a simple matter. Credit cards tend to be a common solution – but not always the best one. What can you do to prepare before disaster strikes?

Moving forward, it’s a good idea to determine a set amount to save each month for emergencies. Ideally, if your budget allows for it, a good amount is 5-10% of your take-home income. But if you can’t manage that much, then set aside as much as you can. Many financial experts recommend setting aside an emergency fund of around $10,000 just in case.

Major life milestones

Babies, weddings, college: each of these events mark a major turning point in life, a milestone many aim to achieve but, while we are daydreaming of these life changing events it’s easy to overlook the actual price tag associated to them. WisePiggy.com recently reported that the average couple spends an average of $31,213 on their wedding. Once interest starts piling up debt of that magnitude can be crushing.

Most major milestones are pre-meditated affairs. Utilizing options like 529 savings accounts to prep for college admissions, or signing up for a credit card that allows you to roll over points into a 401K are great steps to prepare yourself when major milestones occur.

Last tip: Cardratings promotes intelligent use of credit cards. If you’ve entered into the world of consolidation, it’s important to focus on what you already owe, and try not to accumulate any new debt. Closing your old accounts may not be the best option, but perhaps you should place your credit cards in an inconvenient and inaccessible location until you’re able to get your finances under control.

OK, we will get off of our soapbox now.

What are your options?

Now that you’ve taken the time to assess your current financial well-being, weighing the options of consolidation is the next step. There are several options for consolidation at your disposal, each with its own set of pros and cons.

Pro tip: While weighing your options don’t get tunnel vision when it comes to your monthly payment. Just because your monthly payment is lowered doesn’t mean that you’ll be paying less. Example: A $5,000 loan at 10% for 15 years with a monthly payment of only $53 will cost you $2,000 more than the same amount at 18% for 5 years with a monthly payment of $126.

Balance transfer to a low-rate credit card

If you have excellent credit you may qualify for a balance transfer credit card. Balance transfer credit cards regularly tout 0% intro APR and 0% balance transfer fees, which means that if you can pay your debts off (or at least make a dent in them) during the intro offer period, you could be saving a lot of money.


  • Excessive transfers, closing old accounts, and new account activity on your credit history could cause your credit score to drop. 
  • Also, once the intro offer expires, you’ll need to watch out for balance transfer fees. Fees could potentially outweigh any interest savings that you might realize.

Home equity loan or Home Equity Line of Credit

What are they?

  • A home equity line of credit (HELOC) is a loan secured by the borrower’s home – your home is collateral for the money you borrow. HELOCs are good for major expenses (think college or medical debt) because rates will be lowered, but this loan is only good if you can afford it, and your income is incredibly stable.
  • A Home equity loan is a loan of a fixed amount of money secured by your home. Upon agreeing to a home equity loan you’ll agree to equal monthly payments over a set timeframe. Because this loan is a fixed amount it is a good option for one-time events – like paying down higher APR credit card debt. Just as with a HELOC your loan is secured by your home, ensuring you have amble opportunity to pay the loan back is imperative before moving forward with this option.

Beware: You are borrowing against your home – this should not be taken lightly. Any misstep will put your home at risk. If you are unable to pay off existing debt because of factors like overspending, and job loss, risking a lien against your home is a gamble. Use this option with care.

Featured Partner Cards:


The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we cannot guarantee the accuracy of the information in this article. Reasonable efforts are made to maintain accurate information. See the online credit card application for full terms and conditions on offers and rewards. Please verify all terms and conditions of any credit card prior to applying.

This content is not provided by any company mentioned in this article. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any such company. CardRatings.com does not review every company or every offer available on the market.