How To Consolidate Credit Card Debt on Your Own

Choose the right option to pay off your balances

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Debt consolidation is a way to reduce debt by combining multiple credit card balances into a single balance with a lower overall interest rate and better repayment terms.

You have several options for consolidating debt without the help of a debt management company. Learn the various methods you can use to combine multiple debt payments into one debt.


Your creditors may be able to work with you if you’re having trouble making payments during the pandemic. For credit cards and other loans, you may be able to waive late fees or delay monthly payments for a few months. Contact creditors directly to find which options are available to you.

Personal Loan

A personal loan is a type of loan you can use for a variety of reasons, including debt consolidation. This is one of the best options if you can qualify for a low annual percentage rate (APR), relative to the overall rate on your existing debt. You don’t have to put up any collateral, in most cases; only your income and credit history are used to qualify. 

If approved, your debt consolidation loan will have a fixed payment amount and a set repayment period, giving you a predictable payoff schedule. Your interest rate might be high if you have poor or fair credit.

Traditional banks, credit unions, and online banks typically offer loans for amounts of up to $50,000 and repayment terms up to five years, although some lenders may offer bigger loans with longer repayment terms. 

When shopping for personal loans, consider the repayment period and watch out for origination fees. Look at the APR when comparing loans because it takes both the interest and any origination fee into account. 


Long repayment periods can lower your monthly payment, but means you pay more in interest overall.

Debt Consolidation Loan

A debt consolidation loan is an unsecured loan, used exclusively to combine multiple debts into a single balance. These loans may be offered by major banks, credit unions, or online lending firms. Many debt consolidation loans are personal loans.

With debt consolidation loans, it’s important to watch out for loans with a long repayment period. Though these may have a lower monthly payment, the extended repayment time results in more interest paid over the life of the loan.

Credit Card Balance Transfer

A credit card balance transfer can be a good option when you have multiple credit card balances with different card issuers. The application process is straightforward, you don’t risk any collateral, and you’ll typically have a decision within seconds.

The drawback is that low-interest introductory APRs (often 0%) typically last no longer than 18 months. This gives you less time, relative to other consolidation options, to pay off the debt you transfer before the rate increases.

For this reason, make sure you know what the APR will be once the introductory period expires. Also, be aware that most cards assess a balance transfer fee up to 5% of the amount you transfer, which could impact your ability to repay the debt by the end of the introductory period.

Avoid making purchases on your balance transfer credit card, especially if those purchases don’t qualify for a promotional rate, and you don’t pay more than the minimum due each month. 


If you have a low credit score, it may be a challenge to qualify for a balance-transfer credit card.

Home Equity Loan or Cash-Out Refinance

Once you've paid down your mortgage balance enough that the appraised value of your home is higher than your outstanding loan amount, you have equity in your home.

You can borrow against your home equity through a home equity loan or cash-out refinance. These often have low interest rates and high borrowing limits since the loan is secured by your home. Lenders consider your credit and financial history in determining whether you qualify and your rate.


You can use the cash from a home equity loan or cash-out refinance to pay off debt. But, these loans may have high closing costs which could negate the value of the lower rate.

While it’s tempting, tying consumer debt to your home puts you at risk of foreclosure if you fall behind on payments. Plus, if your home falls in value, you could be “underwater," owing more money than your home is worth.

Borrow From a Life Insurance Policy

If you own a permanent life insurance policy with cash value, you may be able to use it to reduce your debt. There are a few different ways to access your policy’s cash value. 

First, you can take out a loan against the cash value in your policy. Rates are typically low and payments aren’t required on a regular basis. Any remaining debt upon your passing will be deducted from the death benefit. Instead of taking a loan, you may be able to withdraw a portion of the money directly, without having to repay it. In either case, no qualification or credit check is required, other than that the cash value must be enough to cover the loan or withdrawal, plus ongoing policy charges.

Alternately, you could cash out your life insurance policy—terminating the policy in exchange for the net cash surrender value (ideally, the entire accumulated cash value). This is usually not a good idea since you lose the death benefit for your survivors, and will probably owe taxes on the cash-out amount.

Cash-Out Auto Refinance

A cash-out auto refinance replaces your existing auto loan with a larger one based on the equity you have in your vehicle. After applying with a bank, credit union, or online lender, you’ll receive a new loan and a lump sum of cash you can use to consolidate your debts.

But because vehicles depreciate quickly, a cash-out auto refinance could leave you with negative equity in your vehicle. This can be a problem should you want to sell the car or if you get in an accident. For instance, if your car is declared a total loss after an accident, your insurance company will only cover the actual cash value of the vehicle, potentially leaving you with a loan balance to take care of.


Depending on how much equity your vehicle has, you may not be able to make a significant dent in your debt balance. And, if you can’t keep up with payments, you risk having your vehicle repossessed.

Borrow From Your 401(k)

The IRS allows you to borrow up to 50% of the available funds in your 401(k) or $50,000, whichever is less.

You have five years to repay the 401(k) loan plus interest when you use the loan to consolidate debt. Otherwise, any unpaid amount is considered an early withdrawal and will be subject to a penalty and income tax. If you leave your job, you may have to repay the loan by the due date of your next tax return or face early withdrawal penalties. You may avoid the penalties by rolling over all or part of the remaining loan balance to an eligible retirement plan or IRA by the tax filing deadline.

Borrowing from retirement poses a risk to your retirement savings. Even if you make contributions while repaying the loan, you give up years of potential earnings through compound interest.

Where to Go For Help If You Need It

You may need help from a professional agency if you can’t qualify for traditional options because you have poor credit or few assets. Getting advice from a nonprofit credit counseling agency can help you sort through your options and chart the best course of action. 

While you may see debt settlement companies advertised as a debt solution, working with these types of companies is a less desirable option because they often charge fees and use methods that harm your credit scores. You can negotiate a settlement with the credit card company on your own, without paying fees to a third-party company.

The Bottom Line

Each consolidation option has its pros and cons. The best option for consolidating your debt depends on your specific situation. Once you've narrowed down your options and started making payments, you’ll likely feel a sense of relief that you're taking valuable steps toward financial freedom.

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  1. IRS. "Retirement Topics: Plan Loans."

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