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Should You Consolidate Credit Card Debt?

consolidate credit card debt

Dealing with debt obligations is always challenging. However, it gets even worse when you have the most expensive debt type – credit card obligations. With the highest average interest rates, credit card debt is the nightmare of millions of users. Hence, it is not surprising why you want to consolidate credit card debt with student loans. Depending on the conditions, this debt management strategy might work. Yet, if you think consolidation is not the right option after checking this guide, we also recommend alternatives to pay off credit card debt. 

How does Consolidation work?

If you want to consolidate credit card debt, you need to first understand what consolidation is and how it works. The concept behind consolidation is straightforward. You get a new loan, preferably with better terms, to pay off existing multiple loans. However, there exist different factors to consider before consolidating your debt. 

For instance, you need to determine what your goal is. Some people consolidate their debt because they find a new loan with a lower interest rate. Others are looking for loans with shorter repayment periods. Additionally, you might want to consolidate credit card debt only to simplify the payment process. It can be confusing to deal with multiple debt categories at the same time. 

Methods for Consolidation

Once you understand what consolidation is and determine your goal, it is time to choose the method. There exist several strategies to consolidate credit card debt with student loans. The most popular options are getting a new personal loan and transferring a credit card balance. 

While evaluating each option, consider additional factors like debt balance, number of debt types, eligibility for consolidation, the impact on credit score, etc. All these conditions will make the consolidation process desirable or undesirable, depending on your qualifications. Therefore, evaluate each method by comparing the consequences of the mentioned factors. 

Personal Loans

Personal loans are distributed to borrowers for different purposes. The loans usually cover the costs of emergency medical situations, wedding arrangements, etc. Usually, personal loans are more expensive compared to federal student loans. However, compared to credit card debt interest rates, personal loans are cheaper. The average interest rate for personal loans is 9.58%, while this rate is 16.30% for credit card debt. 

Yet, the exact interest rate depends on many factors. For example, borrowers with high credit scores can find personal loans to consolidate credit card debt with lower interest rates. On the other hand, your interest rate can be high if you get loans with bad credit history. 

Consolidate Credit Card Debt with Personal Loans

consolidate credit card debt

As mentioned, getting personal loans is one of the ways to consolidate credit card debt with student loans. However, it is still hard to find out if credit card debt consolidation with personal loans is a good idea. Generally, personal loans have higher interest rates than student loans but lower than credit card debt. As you will pay off your student loan and credit card debt, now you will be responsible for personal loan repayment. 

If you want to get a personal loan, you need to check if you will save money from interest payments. For instance, let’s imagine that your credit card debt is highly insignificant compared to student loans. Federal student loans have almost the lowest interest rates. So, it is hard to find a cheaper personal loan. Besides, if you consolidate credit card debt and student loans with personal loans, you will lose all benefits of federal debt. For example, you will not be able to apply for loan forgiveness programs or qualify for extremely affordable Income-driven repayment plans.

Additionally, you need to clarify if the lenders allow using personal loans to cover credit card debt or student loan debt. Some lenders have specific rules on how you can spend the funds from personal loans. 

Transferring Credit Card Balance

You can also transfer your credit card debt as an alternative to getting a personal loan. This method can help you to consolidate credit card debt with student loans. By transferring, you will pay off the existing debt with a new credit card account. However, for this scenario to work, a new account should have multiple benefits. 

For example, finding 0% promotional APR on a credit card account can help transfer and save money significantly. You will avoid paying interest on some transactions, such as transfers. Then, till the promotional period ends, you need to pay off a consolidated debt to maximize your savings.

Refinancing Loans

Refinancing loans can be an alternative to getting a personal loan to consolidate credit card debt. However, refinancing loans are slightly different from personal loans. First, the loan limit is higher for refinancing loans. For example, you can get up to $750,000 with a refinancing loan.

However, this limit is only around $100,000 for personal loans. Next, the repayment period for refinancing loans can be longer than personal loans. For instance, you repay debt for up to seven years with personal loans. For refinancing loans, you repay debt for up to 20 years. Lastly, it might be good to get a refinancing loan because it has a lower average interest rate than personal debt.  

Pros of Consolidation

Before you consolidate credit card debt, you need to think of the benefits and drawbacks of consolidation. There still exist alternatives to consolidation, which we will discuss in subsequent sections. If you believe consolidation is not right for you, consider the following solutions. 

Simplify the repayment– Consolidating a loan can help borrowers to simplify the repayment process. When having multiple debt types, borrowers might get confused. For example, some might forget the payment deadlines; others might struggle with various pressuring lenders. So, when you consolidate debt, instead of multiple types, you get a single loan or debt category. In this way, it is easier to keep control over your obligations. 

Fast repayment– Another benefit of consolidation is that it might help to repay debt fast. For example, if you want to consolidate credit card debt, you might get a shorter repayment period. Credit card debt repayment does not have an exact timeline. However, personal loans or refinancing loans have accurate repayment plans with a clear timeline. 

Save money– Next, you might get lower interest rates if you find a consolidation loan with a better rate. As mentioned, credit card debt is the most expensive. If you consolidate credit card debt with cheaper options- such as a personal loan- then you can save money from payments. 

Better Credit Score– Lastly, you can improve your credit score by consolidating your debt obligations. You successfully close one debt account when you get a new loan to pay off your existing loan. Hence, your credibility can increase although you generate new debt.

Cons of Consolidation

consolidate credit card debt

Yet, consolidation is not always desirable. Sometimes you need to ignore the benefits and look for better options. 

Not a 100% solution– Consolidation will not help you if you do not change your spending habits. It is necessary to live based on your means. If you continue spending without considering your income, the credit card debt will again become significant. Hence, consolidation might not be an effective solution.

Hard to find better terms– Next, there is no guarantee that your new loan will have better terms. If you have financial struggles and bad credit history, you might not find a new loan with better terms. So, consolidation will not help you to repay debt fast or save money from payments. In the case of federal student loans, the new interest rate on consolidated loans will be the weighted average of existing loans. Hence, consolidating only student loans is not a suitable option if you want to have a lower interest rate. 

Eligibility to federal benefits– One of the most significant drawbacks of consolidating credit card debt with student loans is that you will lose all benefits for federal student loans. Federal loans allow borrowers to apply for loan forgiveness or discharge programs. 

Besides, the government backs the federal loan borrowers. In more detail, if there is a government decision, it will only apply to federal loans, not to private debt. Right now, there is a non-repayment period due to the pandemic, which only applies to the federal debt. Hence, if you consolidate credit card debt with student loans, you forego all the federal aid benefits.

When is Consolidation a Good Idea?

As mentioned before, whether it is worth it to consolidate credit card debt with student loans depends on many factors. In general, credit card debt consolidation is a good idea if you have a great credit score, or at least you have improved credit performance since your last loan disbursement. In this case, you will easily find loans, whether refinancing, personal, or consolidation loans, with better terms- lower interest rate or faster repayment. Otherwise, if you have a bad credit history, it might not be a good idea to consolidate credit card debt. 

Next, if your aim is only simplifying the repayment, consolidation is highly effective. It might be hard to keep up with multiple loans, or you might be fed up with the pressuring lenders. You get a single repayment to control and change your lenders or loan servicing companies by consolidating your debt obligations. 

Lastly, you need to ensure that you can actually afford the new repayment. Consolidation does not mean you will get rid of the repayment process. Instead, you need to repay the new loans, whether refinancing, consolidation, or personal debt. If you continue living beyond your means, you will not be able to repay your new debt, and even worse, you will generate more debt obligations. 

How to Find a Consolidation Loan?

This section will discuss the process on how to consolidate credit card debt. However, if you think consolidation is not right, you might find alternatives to pay off credit card debt in the following sections. 

Check Credit Performance

Private loans require high credit scores for granting lower interest rates. If you want to consolidate credit card debt, you need to check the requirements of different lenders. Once you know what credit level lenders require, you need to find out your credit score and compare. Therefore, you need to check credit reports and determine if there is any inaccurate information that might hurt your credit score. 

Determine the Amount

It is necessary to determine how much you need to consolidate your existing debt. Sure, it is advisable to get the lowest possible amount. However, keep in mind that you pay the debt together with the interest payment. Hence, you should aim for the lowest repayment. If there is an excessive amount, you should return it to the lender or avoid getting it and not pay interest for that amount in the future. 

Compare Lenders

Different from federal loans, for private loans, there exist various lenders. Each lender has its requirements for interest, eligibility, and the repayment period. If you check many different options, you might find a way to consolidate credit card debt with the most suitable choice for your finances. 


You might find a prequalification tool on most of the lenders’ websites. This tool allows you to put all the details and get some idea of what interest rate you will qualify for. 


Once you prequalify, you need to collect documents and submit a formal application. Keep in mind that getting multiple rejections can impact your credit performance. 

Credit Card Debt Repayment

consolidate credit card debt

Unfortunately, when it comes to credit card debt, it is the worst. Credit cards have almost the highest interest rates. An average interest rate for credit card users is 16%, while this rate is only 3-5% for federal student loan borrowers. Hence, it is not surprising that you are looking for ways to consolidate credit card and student loan debt.

After reading all this information regarding consolidation, if you decide that it is not an option for you, here are some strategies for you to get rid of credit card debt. 

Prioritize Credit Card Debt

If you have both federal or private student loans and credit card debt, we would advise you to prioritize the latter. The main reason behind this recommendation is that credit card debt has the highest interest rate. Keeping this debt will make you owe more in a short period. In other words, credit card debt grows bigger with time compared to student loans.

Strategies to Pay Off Credit Card Debt

If you do not want to consolidate credit card debt, you can pay it off with different strategies. For example, the Snowball method is one of the most well-known methods to get rid of credit card debt. According to this strategy, you need to list different debt types you have based on their volume. Then, you start making higher payments for the smallest debt while keeping minimum payments for others. Once the smallest debt is paid off, you use the idle cash from this debt for the next smallest one. 

Another strategy is called the avalanche method. First, you need to list your debts again, but this time according to the interest rate. Then, you start paying off the debt with the highest interest rate. Once paid off, you move to the following highest interest debt. So, if you have multiple credit card debts, you need to close first the one with the highest interest, instead of the smallest balance like in the Snowball method. 

Yet, each method has its benefits and drawbacks. For example, the Snowball method can be revealing as paying off a debt can feel like you are making great progress. However, the most expensive debt can still generate more obligations. Additionally, the avalanche method can be demotivating once you realize the effort needed to pay off the most costly debt type.

So, if you do not want to consolidate credit card debt, consider paying it off.