Credit card consolidation loans

A credit card consolidation loan is a type of personal loan that you can use to pay off high-interest credit card balances. This process (also known as credit card refinancing) leaves you with just one single monthly payment to manage.

Depending on your credit, you could get a lower interest rate on a personal loan than what you’re currently paying on your credit cards — saving you money each month and potentially repaying your debt faster.

Or, you might opt to extend your repayment term to lower your monthly payment and lessen the strain on your budget. Just keep in mind that choosing a longer repayment term means you’ll pay more in interest over time.

You use a credit card consolidation loan to pay off existing credit card debt. Through this process, you can combine your balances from multiple credit cards so you’ll have just one loan with a single manageable payment.

Ideally, a credit card consolidation loan could get you a lower interest rate than you’ve been paying — which could save you hundreds or even thousands of dollars on interest charges over time.

Borrowing money comes at a cost, so it's important to understand the differences between APR and interest rate when comparing loans or credit card offers.

The interest rate is the amount a lender charges you for taking out a loan. It also applies to the percentage charged on credit card balances.

Annual percentage rate (APR) is the actual total cost you pay for taking out a loan, including your interest rate and any fees the lender charges, such as origination fees. Your loan APR is an important figure when calculating your loan costs because it gives you an overall picture of the total amount you’ll pay.

The APR on credit cards tends to be higher than on personal loans, which means you might be able to get a lower APR by consolidating your credit card debt with a personal loan. And, unlike credit cards, personal loans generally come with low interest rates that are fixed for the life of your loan.

Consolidating your credit card debt might be a good idea for several reasons, such as:

• You could get a lower interest rate. If you consolidate your credit card debt, you might qualify for a lower interest rate than what you’ve been paying. This could save you money on interest and potentially help you pay off your debt faster.

• You need a lower monthly payment. Personal loans typically come with repayment terms from one to seven years, depending on the lender. Choosing a longer term can reduce your monthly payment and lessen the strain on your budget. Keep in mind that extending your term means you’ll pay more interest over time.

• You have multiple debts to manage. Consolidating your credit card debt will leave you with just one loan and one single monthly payment to worry about. You also have the option to consolidate other types of debt with a personal loan, not just credit cards — for example, you could consolidate bills or other loans with higher APRs.

If you consolidate credit card debt with a personal loan and can qualify for a lower interest rate, you could save a significant amount of money on interest over the life of your loan.

For example, say you're repaying $10,000 in credit card debt at 16.91% interest. In order to pay that debt off in two years, you'd have to make monthly loan payments of $494, and you'd pay $1,856 in interest charges. Additionally, since most credit cards have variable interest, you might end up paying more than this.

Refinancing that debt into a two-year credit card consolidation loan with a fixed 10.36% interest rate would lower your monthly payment by $31 and save you $741 in interest.

Also keep in mind that most lenders — including Credible’s partner lenders — don’t charge fees for repaying your loan early, so you might be able to save even more if you can afford to pay off your loan ahead of schedule. You can use Credible’s Personal Loan Calculator to see how much you’ll pay for a personal loan — and how much you might be able to save.

Generally, shopping around and comparing your loan options from multiple lenders likely won’t hurt your credit score — so long as the lender lets you see your personalized options with only a soft credit check. For example, checking your prequalified rates from Credible’s partner lenders only requires a soft credit pull, which won’t affect your credit.

When you apply for a credit card consolidation loan, the lender will perform a hard credit check, which could cause a slight drop in your score. But this dip is usually only temporary, and your score will likely bounce back within a few months.

Additionally, a credit card consolidation loan could actually help improve your credit score. For example, by making on-time payments and lowering your credit utilization by consolidating your debt, you could also help boost your score.

Ultimately, the positive impact on your credit score from a credit card consolidation loan will likely outweigh any initial negative effects.

A balance transfer credit card is another option for consolidating your credit card debt. You can move your balance from one card to another and pay off your balances interest-free. But the interest-free period on a balance transfer card doesn’t last forever, and you may pay a balance transfer fee.

If you’re considering a personal loan vs. a balance transfer card, here are some pros and cons of each approach to keep in mind:

There’s no difference. A credit card consolidation loan is simply a type of personal loan that you can use to pay off credit card debt. But keep in mind that you can use a personal loan for almost any other personal expense, too — such as consolidating other kinds of debt or making large purchases.

Consolidating credit card debt or simply paying it off are both viable strategies for managing your credit cards. The right option for you will depend on your individual circumstances and financial goals.

Paying off your credit cards

If you choose to pay off your credit cards without consolidating them, you won’t be able to take advantage of the lower fixed rates that personal loans offer. Additionally, credit card variable rates can fluctuate, which could land you with higher interest charges and prolong your repayment time. You’ll also have to keep track of the payments and rates on each card to stay on top of them.

But if you have relatively small balances on each of your cards and can repay them in a short amount of time, simply paying off your cards might be an easier option.

Consolidating your credit card debt

If you use a personal loan to pay off your credit cards, you’ll be left with just one loan and payment to worry about. Additionally, you’ll typically have a fixed rate that won’t change over the life of the loan. And because personal loan rates are usually lower than credit card rates, you might be able to save on interest over time and potentially pay off your debt faster.

But if you have poor credit, you could have a hard time qualifying for a better rate. In this case, it might make more sense to simply focus on repaying your credit card balances through on-time payments.

Keep in mind that building a positive payment history and lowering your credit utilization — or how much you owe on your cards versus your total credit limits — could help improve your credit score over time and make it easier to qualify for better rates in the future.

This mainly depends on the type of lender you choose. For example, getting a credit card consolidation loan through an online lender could be a faster process than going through a traditional bank or credit union.

The time to fund a credit card consolidation loan also depends on the lender. Here are the funding times you can generally expect:

• Online lenders: Less than 5 business days

• Banks: 1 to 7 business days

• Credit unions: 1 to 7 business days

Some lenders offer fast personal loans with quicker funding times. For example, several of Credible’s partner lenders provide same- or next-day loan funding after approval.

If you’d like to get your loan funds as soon as possible while avoiding delays, be sure to:

• Fill out the application as accurately as you can.

• Submit any required documentation in a timely manner.

Yes — with a credit card consolidation loan, you don’t have to close your credit cards once you’ve paid them off. That means you’re on your way to becoming debt-free sooner. But it’s important to make sure you don’t fall into bad spending habits with your newly paid-off credit cards.

Here are a few ways to keep your credit card spending manageable so you don’t end up with more debt:

• Make a plan for how to use your cards. If you have multiple credit cards, consider using just one of them for regular spending. You might use your others for recurring payments each month — such as a gym membership or streaming subscription — so they can continue building your credit history. This way, you can more easily keep track of your spending.

• Pay off your credit card each month. If you pay off your balance before your due date each month, you can avoid paying interest. Be sure to only spend what you can afford to pay back before your due date.

• Don’t spend for rewards. While credit cards can offer various rewards, don’t let these potential perks affect your spending decisions. If you do, you could end up with a large balance to pay off — which likely isn’t worth whatever rewards you get.

You’ll typically need good to excellent credit to qualify for a personal loan. But several lenders offer debt consolidation loans for bad credit — just keep in mind that you’ll likely be offered higher interest rates on these loans compared to someone who has good credit.

Another option to get approved more easily is by applying with a cosigner who has good credit. Not all lenders allow cosigners on personal loans, but some do. Even if you don’t need a cosigner to qualify, having one could get you a better interest rate than you’d get on your own.

If you can wait to consolidate your credit card debt, you could also consider working to build your credit to qualify for better rates in the future. Here are a few ways you might be able to do this:

• Make on-time payments. Your payment history is the biggest factor that makes up your credit score. If you pay your monthly bills on time, you could see an improvement in your score.

• Pay down your credit card balances. Your credit utilization is another major factor that determines your credit score. You can lower your credit utilization by paying down your balances, which could help boost your score.

• Avoid new loans. Whenever you apply for a new loan, the lender will perform a hard credit check, which could cause a drop in your score. While this drop is usually only temporary, it’s a good idea to avoid taking out new loans when possible if you’re focused on building your credit.

To find the best credit card consolidation lender, you’ll need to do your research and compare as many lenders as possible so you can find the right loan for your needs. Consider not only interest rates but also repayment terms and any fees the lender charges — then you can choose which lender works best for you.

As you shop around, be sure to keep an eye out for potential personal loan scams, too. A few red flags to watch out for include:

• Not requiring a credit check

• Demanding upfront payment before processing your application

• Pressuring you to make an instant decision

• Asking you to send them money in a way that’s harder to trace and doesn’t involve bank accounts (such as with a prepaid gift card)

Remember that if you take out a credit card consolidation loan through Credible, you can see your prequalified rates from multiple lenders that have been thoroughly vetted. Credible evaluated loan and lender data points for 22 lenders in 10 categories to identify some of the best personal loan companies.

Here are Credible's partner lenders that offer personal loans for credit card consolidation: