Consolidate your Credit card debt? Yay or Nay?

Lyle Daly, The Motley Fool
Motley Fool

Debt consolidation isn’t always the best option. Check out these common reasons why you wouldn’t want to consolidate your credit card debt.


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When you’re dealing with the stress of multiple expensive credit card payments every month, debt consolidation can seem like a light at the end of the tunnel. By getting a new credit card or a loan, you may be able to pay a lower interest rate and start making just one payment per month.

There are plenty of times when consolidation is a great idea, but it’s not always a slam-dunk solution. Here are five situations where you may want to reconsider consolidating credit card debt.

1. You haven’t corrected the cause of your debt

You shouldn’t look at consolidation as a solution to credit card debt, because it’s not. It’s simply a way to save money on interest and reduce the number of monthly payments you’re making.

Before you think about consolidation, it’s important that you’ve corrected the reason you got into credit card debt. If you were spending too much, that means creating and following a budget. If you weren’t making enough money to cover your bills, that means either cutting your expenses or increasing your income.

Without doing these things first, you’ll likely fall into the same patterns and end up in debt again.

2. Your credit score isn’t high enough for the best debt consolidation options

Debt consolidation only makes sense when it’s going to save you hundreds of dollars or more. For that, you’ll need either a personal loan with a low interest rate or a balance transfer card that starts you off with a 0% intro APR.

What do both of those have in common? You can only qualify for them if you have a high credit score. While every lender and card issuer has their own requirements, you’ll typically need a credit score of at least 670, and above 700 would be even better.

3. You’d be using a secured loan or line of credit

Another way to consolidate debt, particularly for consumers without the best credit, is to get a secured loan or line of credit. A home equity line of credit (HELOC) is a popular choice.

Opinions are mixed on this, but I’d only recommend it as an absolute last resort. Credit card debt is unsecured. Although it isn’t good to default on a credit card, at least the card issuer can’t repossess your assets for it.

If you consolidate your credit card debt with a HELOC or any secured financing, you’ve gone from unsecured debt to secured debt and put an asset at risk.

4. It wouldn’t save you much money

Debt consolidation isn’t free. Most balance transfer credit cards charge you 3% for each balance you transfer, and you’ll start paying interest on those balances again once the 0% intro APR ends. A loan may have an origination fee and a prepayment fee, ensuring you pay the lender at least a certain amount on top of your principal and the interest you incur over the loan term.

With debt that’s going to take over a year to repay and will cost you a lot in interest, the savings makes consolidation worthwhile. But if it’s debt you could realistically repay in a matter of months, it’s probably not worth the time spent and the fees for such small savings. Calculate how much you’d pay with and without debt consolidation to help make your decision.

5. You have too much debt to consolidate at once

To consolidate credit card debt, you must get a large-enough loan or a credit card with a sufficient limit to cover all your current balances. That may not be an option if your balances are too high.

You can’t be entirely sure how much money you’ll be approved to borrow until you apply, but you can make an educated guess based on your income, credit score, and any previous loan amounts or credit limits you’ve had in the past. Many lenders also let you see how much you’re prequalified to borrow without impacting your credit score.

If you’re planning to get a balance transfer card, make sure you also check the terms for any transfer limits. For example, some card issuers set transfer limits of $7,500 to $10,000, so if you had $15,000 or $20,000 in debt, you’d need to pay that down first.

To consolidate or not to consolidate

None of this is to shoot down the idea of consolidating your credit card debt. If it fits your situation and it will save you money, then by all means, go for it. Just watch out for any potential obstacles that could make it a bad idea.

The Motley Fool owns and recommends MasterCard and Visa, and recommends American Express. We’re firm believers in the Golden Rule. If we wouldn’t recommend an offer to a close family member, we wouldn’t recommend it on The Ascent either. Our number one goal is helping people find the best offers to improve their finances. That is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

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