If you are struggling with credit card payments, there are multiple ways to tackle it. There isn’t one right way to pay off credit card debt, but there are some tried-and-true methods that could help you get your balances to zero.
If you can’t afford the minimum payment, you should contact your credit card provider. They might let you pause your payments if you can’t afford them because of a temporary issue such as a job loss.
No matter your situation, lenders must work with you to offer short-term or long-term solutions that fit your needs and circumstances.
If you’re still able to handle the debt yourself, consolidating credit card debt could help simplify and lower your monthly payments as you work to become debt-free.
Consolidating credit card debt is when you combine multiple credit card balances into a single monthly payment that ideally has a lower interest rate than what you’re currently paying.
But consolidating your debt takes time, and many methods require an application process to see whether you’re approved first, which usually results in a hard credit search that can cause your credit scores to drop a few points.
To help you decide if credit card consolidation is right for you, here are several methods to consider.
- Apply for a personal loan
- Use a balance transfer credit card
- Ask a friend or family member for help
- Work with a nonprofit debt counselling organisation
1. Apply for a personal loan
A personal loan can be used to consolidate debt, and the funds from a debt-consolidation loan can be used to pay off your credit card balances. So instead of making multiple credit card payments each month, you make one payment for the personal loan.
Pros
- A single fixed amount to repay each month, which brings certainty and peace of mind.
- You know the loan amount upfront and can check that this will cover the total amount that you want to consolidate — unlike a balance transfer credit card.
- You can potentially get a lower interest rate than you’d find with a credit card. This would make it easier to repay your debt.
- Unlike a credit card, a loan is not an open line of credit. You won’t have the temptation to spend more and increase your debt.
Cons
- You still have to pay interest on loan.
- You might not get a loan amount that covers all credit card debt or might not get a lower interest rate — but customers will find these out in the eligibility check service before applying
- When you pay off credit cards using the proceeds of a personal loan, you free up your line of credit. If you use these cards again and can’t pay off the balance, you could end up owing your original providers again.
- But now you’d have to pay off your consolidation loan and a bunch of new debt, leaving you in worse shape.
2. Use a balance transfer credit card
A balance transfer lets you move balances from one or more credit card accounts to a different card. Balance transfer credit cards often offer an introductory 0% APR on balances you transfer within a certain amount of time.
Pros
- No interest charged during the 0% promotional period, so you get a pause on interest and a good chance to pay off debt faster.
- You can set up fixed monthly payments, which brings certainty and peace of mind.
- By calculating how much you need to repay each month to clear your balance within the promotional period, you can clear off debt quickly.
- If you pay off the balances you transfer before the introductory period expires, you could avoid paying interest charges on the transferred balance altogether.
Cons
- The promotional period is limited, and after that the interest rate applies.
- Most credit cards don’t show the credit limit until after you apply and a hard search is recorded on your credit score. Also, the credit limit might not cover the full balance you want to transfer.
- Most have a balance transfer fee that applies to the balance you transfer. This is usually around 2%, and you will need to repay this.
- You cannot transfer balance from the same lender.
- A missed payment will cancel the 0% promotional period and normal interest rate will apply, so it’s important to not miss any payments.
3. Ask a friend or family member for help
Depending on how much money you owe and what your overall financial picture looks like, it may make sense to ask a friend or family member to lend you the money.
But if you opt for this method, it’s important to be sure the loan terms and repayment plan are clearly outlined, just as they would be if you were getting a loan from a financial institution.
Pros
- When you borrow money from somebody you know, you don’t have to meet minimum eligibility requirements to qualify for the loan, and you may be able to get a lower interest rate than you would from a bank or lender.
Cons
- Borrowing money from someone you know is tricky because it can put a strain on your relationship. Also, if you’re unable to repay the loan on time, you might be putting their finances at risk.
Heads-up on the following options
The following are other credit card consolidation methods that are available, but you should be aware that they’re riskier than the options we’ve discussed above.
4. Work with a nonprofit debt counselling organisation
Debt counselling organisations can review your entire financial situation and work with you to create a plan to tackle your financial challenges. They give advice about credit issues, budgeting, money management and debt management.
If you get advice and make a plan to deal with your debts, lenders are more likely to let you pause your payments. Organisations like Citizens Advice and StepChange — which offer free advice — can help you make a plan for your debts.
If you work with a debt counselling service, it’s important to research the organisation before you get started. Check with the Money Advice Service for recommendations.
Pros
- A debt counselling organisation may work with your creditors to set up a debt-management plan on your behalf, which requires you to make a single monthly payment to the debt counselling organisation each month. The organisation then uses the money you provide to pay your creditors. Your debt advisor may also work with your creditors to negotiate lower interest rates or waive certain fees.
Cons
- Some debt counselling services may charge a fee for some of their services, and you may have to agree not to apply for new credit or use your existing credit if you participate in a debt-management plan.
What’s next?
Consolidating your credit card debt into a single payment may seem like the solution to your financial troubles, especially if you can get a lower rate.
Before consolidating your credit cards though, come up with a budget that will help you minimise your spending while you’re paying down your debt. Once you have a plan, you can choose the credit card consolidation method that’s right for you. And try to avoid choosing a debt-consolidation method that may put your house, car or retirement in danger.