Best Credit Card Consolidation Loans of November 2020

Should I consolidate credit card debt?

If you’re struggling to keep up with credit card bills, consolidation can give you the breathing room you need to pay down debt. It can lower your payments, reduce interest costs and help you reduce debt quicker. Ideally, the rate you receive on the loan is lower than the combined interest rate on your credit cards. You’ll need good to excellent credit (690 to 850 on the FICO scale) to qualify for the lowest rates.

If your credit card debt is unmanageable — you can’t repay it within five years and the total balance equals half or more of your gross income — then debt relief may be more effective than debt consolidation.

How to get a credit card consolidation loan

Take these steps to start the credit card consolidation loan process.

Know your balances and rates: Add up what you owe on the credit cards you want to consolidate, sorted by total balances and interest rates.

Aim to consolidate cards with rates that are more than the annual percentage rate you can get on a consolidation loan, to save on interest. For example, if the rates on your credit card balances are between 15% and 30% APR, look for a consolidation loan of less than 15% APR.

A loan’s APR is its interest rate plus all fees, including origination fees. Personal loan APRs range from about 6% to 36%, depending on your credit score, annual income, debt-to-income ratio and where you get a loan.

Estimate your savings: Use a debt consolidation calculator to understand how much you can potentially save by consolidating.

The calculator shows your credit card’s combined APR, and you can view how different rates and loan terms impact your payment and savings.

Compare loan features: When shopping for loans, compare features as well as rates. Some lenders offer direct payment to creditors, which means they send your loan proceeds to your credit card issuers, simplifying the debt consolidation process.

Other features that may be important to you include free credit score monitoring, credit health tools or hardship programs that temporarily suspend payments if you lose your job. Time to funding is another consideration if you need a loan fast.

Pre-qualify and apply: Pre-qualifying with lenders lets you preview the rates and loan terms you may receive, with no effect on your credit score. It also makes it easier to compare loans from multiple lenders.

After pre-qualifying and comparing options, you can formally apply for a personal loan.

Get approved and funded: Debt consolidation loans can take one day to a week to get funded, depending on the lender.

If the lender directly pays your creditors, check to ensure the payments are applied to your balances. If direct payment isn’t offered, you’ll need to pay off each credit card with the money deposited to your bank account.

Get ready to make your first new loan payment, which will likely be one month after funding.

» MORE: Bad credit? How to get a debt consolidation loan

Credit card refinancing vs. debt consolidation

Refinancing credit card debt is similar to consolidation, but instead of getting a personal loan to pay off your credit cards, you get a low-interest credit card and transfer the balance from one or more existing credit cards onto the new card.

Refinancing is often called balance transfer, and many balance transfer credit cards offer a 0% introductory APR for a period of 12 to 18 months. Like personal loans, you'll need good or excellent credit to qualify for the lowest rates.

Unlike debt consolidation loans, there is no set repayment term on a credit card (just a minimum payment requirement), and rates are often variable instead of fixed.

Balance transfers work best if you have a small balance to consolidate ($15,000 or less), and only if the interest savings outweigh any fee required to carry out the transfer. Aim to pay off the balance in full before the zero-interest promotion expires and the APR resets to its normal, higher rate.

» MORE: Debt consolidation loan or balance transfer card?

What to do after consolidating credit cards

Plan your payments: If you didn't opt for automatic payments at loan closing, doing so now makes for convenient and on-time monthly payments, helping you avoid late fees. Auto payments are one way to manage your loan payments.

Stick to a budget: The new loan payment should fit into a budget that allocates income toward your needs, wants, savings and debt. Budgeting can help you change your spending habits, spot areas to cut back and boost your cash flow.

Avoid new credit card debt: You’ll have a lot more spending power on your credit cards after consolidating them, and there may be some temptation to use them. Track your spending carefully and aim to keep your credit utilization ratio below 30% on each card.