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Chances are good if you’re reading this article, you’re trying to regain control over your debt situation.  And if your experience resembles mine in any way, then you’ve also realized when you Google Credit Card consolidation, most online content comes from biased companies peddling you their services–something that just doesn’t inspire much confidence in their advice.    

Because of this frustration, I decided to create the Ultimate Guide to Credit Card Consolidation.  The goal of this guide is to provide you with everything you need to know about credit card consolidation in an unbiased method, so you can make informed financial decisions that best fit your needs.  As a disclaimer, we offer ads from lenders, but we make sure that doesn’t impact the advice we give.


Credit card consolidation is the process of taking several outstanding credit cards and merging them into one single loan.  The goals for consolidating debt would be the simplify the payment process (having to only pay one lender instead of dozens), and hopefully reduce your overall interest expenses by getting a new loan with interest rates lower than any of the individual loans you’ve consolidated.


As a debt counselor, I receive many calls from people looking to escape a bad debt situation by seeking a new loan.  Regardless of whether this is the right decision for them, they often don’t realize they have other options they can consider.  Understanding all those options can be incredibly confusing, especially since they all have similar names, but that’s not excuse for learning what your options are before taking the plunge.  So before we dive further into Credit Card Consolidation, I want to provide a brief overview of what options you can have outside of credit card consolidation.

Paying off Your Debt

Do this the old fashioned way, by reducing your spend and applying those savings to pay off your creditors:

Pros:  It feels good to do it yourself.  Best effect on your credit score too.

Cons:  It can take a while and requires a lot of discipline.  It might also be more costly than credit card consolidation if your interest rates are real high.  Also, it might not be enough if you’re completely swamped in debt

Recommendation:  If you do not have much debt, or if you rates are not astronomical,  this is the most honorable approach.

Do nothing:

For all your credit card debt and most other unsecured loans (excluding student loans, childcare, and liens) if you do nothing for 7 years, technically your slate is wiped clean and the creditors can no longer legally pursue you or ding your credit score any more.

Pros:  You don’t have to pay anything

Cons:  Your credit score can be destroyed for 7 years, and you will suffer the agony of being hounded by collections agencies for years on end.  These will still continue even after the 7 years. Even though the collectors have no more legal rights to pursue the money from you, they will still harass you in hope that you’ll pay up out of ignorance.

Recommendation:  I would not recommend this, especially if your debt is large.  Chances are good you’ll get sued at some point by the creditors, which means going to court and wage garnishments.

Debt Management Plan:

These are offered by nonprofit organizations that help consolidate and then renegotiate your  interest rates with your creditors. This option can be an alternative to debt settlement.  They usually charge a monthly fee, legally it can’t be over $79 a month, but most run around $25 a month.

Pros:  They have minimal impact on your credit score

Cons:  Their program lengths can run for 5 years, which means you can easily have paid $1500 in fees before you’re done

Recommendation:  You can use these if you don’t have a lot of debt and you can be quickly in and out of the program.

Debt Settlement Plan:

Debt Settlement, also known as Debt Relief, is a service where a debt settlement companies withdraw a predetermined amount from your bank account each month that they put into escrow for you.  Please note that an individual can settle his/her debt on their own as well. This option is often an alternative to bankruptcy.  They then negotiate with your creditors to reduce your overall debt amount, and use the money they have been saving up for you to pay off that debt.  

Pros:  You can get out of debt within 2 years and pay as little as 27% of your original debt, although it averages out to be around a 55% discount

Cons:  In order to get your creditors to be willing to negotiate, you’ll have to let your bill payments fall behind.  If they aren’t already behind, this could have a big impact on your credit score. We wrote an article estimating debt settlement credit score impact. Also, many debt settlement programs charge exorbitant fees up to 25% of your original debt amount.  This often leaves debtors paying more than if they had just stuck with their original payment schedule.

Recommendation:  There are many Debt Settlement Company where the representatives are not honest with their counsel or their high settlement rates. If you use debt settlement, make sure you find a good company, go through an exhaustive list of pros and cons and always ask about their rates and payment plans. Steve Rhode from has a great article if you are considering Debt Settlement vs Debt Consolidation.

Payday Loans & Title Loans:

These are a loan of last resort.  The rates are so high that it almost never makes sense to use these as options for getting yourself out of debt..  

Pros:  You get instant cash

Cons:  The exorbitant interest rates will keep you in the debt cycle.

Recommendation:  I can go into horror stories here, but just please take my advice and avoid these.


Pros and Cons of Debt Consolidation Picture of Pros
Pros and Cons of Debt Consolidation Picture of Cons


Before you decide to consolidate your debt, you should know that not all loans are created equally.  Some types of debt are better suited for consolidation than others.

Mortgage – Mortgages are considered secured loans, which means that the bank is using your house as collateral for giving you the loan.  If you don’t make your monthly payments, then they repossess your house. While this sounds cruel, it also allows them to offer you lower interest rates than any unsecured lender could give you.  As such, it doesn’t make sense to consolidate your mortgage.

Rather, if you find your mortgage payments over overbearing, you should consider either refinancing your mortgage or downsizing homes.  Refinancing usually only makes sense if market rates are now lower than when you originally bought the home.

Many people are tempted to take a second mortgage or a Home Line of Equity against their home to consolidate their debt.  

Certain lenders will only give you a personal loan if you offer collateral, such as a car or the title to a home.  I would strongly recommend against this because you’d essentially be trading down. In summary: don’t trade unsecured debt for debt that requires collateral.  It’s a bad deal.

Car Loan – Car loans are similar to mortgages in that they are also secured loans.  As such, you will rarely benefit by trying to consolidate your car loan. If your car payments are too high, I would honestly recommend you simply trade in your vehicle for one whose payments you can more easily handle.

Credit Card Loan – Credit card loans are the ideal loans to consolidate.  Credit Cards tend to have much higher interest rates than personal loans, which means you can save a significant amount of money by switching you debt from credit card to personal loan.

Medical bills – For all intents and purposes, medical bills are similar to credit card debt.  Some hospitals may make you take out a Care credit card to pay off your bills, while others may simply send you the bill with or without any late fees attached.  If there are no late fees, then you simply run the risk of having your credit score affected if you fall behind on your payments. You can also ask for a payment plan, to which they’ll usually refer you to the Care credit card or a similar program.  In such a case, it would be best to compare the rates they offer in their payment plan against the rates you can procure if you were to consolidate the date on your own.

Student loans – Student loans are considered low risk for lenders because you cannot escape them through settlement or bankruptcy.  Unless you’re willing to skip town and move to India, chances are good that you’ll have to eventually pay that loan back.  As a result, student loans tend to have interest rates that are as low as home mortgages. Because of this, you will probably not find any savings benefits from consolidating your student loans.


If you have a credit score above 600, you might qualify for a lower interest credit card consolidation loan so you can pay off your more expensive credit card bills.,, and are popular websites for personal loans that are cheaper than what your local bank will offer. Because these websites often look at more factors than your bank will when qualifying you for a loan, they might also be willing to work with you even if your local bank won’t.

If you have excellent credit, you can also qualify for certain credit cards that offer 0% APR for balance transfers for the first year.  This will buy you 12 months of funding interest free to pay off your debts.

Buyer Beware:  If you know you don’t have the fiscal discipline, then stay away from this strategy.  Better yet, cut up those credit cards. I’ve come across too many customers that tried to consolidate their debt by taking out a personal loan, but the moment they received the cash, they spent it all and instead got only further in debt.  Needless to say, the same goes with the credit card. If you can’t pay off your bills in 12 months, then don’t do it.


As I’ve mentioned before, I’ve come across many situations where people have tried to consolidate their loans, but the moment they get the cash, they spend it on an “emergency” rather than paying off their original, high-interest loan.  They end up in a an even bigger hole with twice the debt. If you have any possible inclination of falling into this trap, then please avoid credit card consolidation, and consider the other options that we mentioned before.

One of the gimmicks that many people fall for us they trade one loan for another, because the new loan has lower payment plans.  However, if the new loan has a much longer lifespan than the original loan, you could be paying for many years longer, and end up even more out of the pocket than if you stuck with your original loan.  As such, I recommend that you always compare apples with apples, and oranges with oranges. When comparing loans, look specifically at interest rates, and look at how much in interest you’ll have to pay out over the life of the loan.  If one loan is less in both scenarios, then it’s clearly the winner. Just don’t choose the plan that has the lower monthly payments. It could be a trap.


There are four main alternatives to credit card consolidation. I will go through each of them one by one:

  1. Debt Management: Debt management is through a debt management program where the goal is to reduce your interest rate.
  2. Payoff on own: This method is to continue paying off on your own often through either the Avalanche or Snowball method.
  3. Debt Settlement: This method is where an individual or service negotiates for a lower amount owed on the debt.
  4. Bankruptcy: There are two main options: Chapter 13 and Chapter 7. A Chapter 7 is more severe and wipes out your unsecured debt, and a Chapter 13 is a restructuring of your debt. We built a Chapter 13 Calculator to help you determine what each option would cost and the implications.


I often get phone calls from people asking for a loan, even though we’re not in the business of offering loans.  Some people try and call anybody they can find, hoping somebody will give them a loan. This can be pretty tiring, especially because if one lender declines to give you a loan, chances are good most other lenders will also decline you.

If you are constantly being turned down by creditors a consolidation loan, you may want to review your credit report and see what factors are preventing you from providing a loan.

Post Author: Ben

Ben is a co-founder and writer for Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. In his free time, Ben enjoys spending time going on adventures with his wife and two young daughters.

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