Pros & Cons of Consolidating Credit Card Debt

Credit Card Debt

When credit card debt gets out of control, action needs to be taken to avoid getting into too much debt. And the most common repayment strategy is debt consolidation.

Through consolidation, you take out a loan to pay off your credit card bills and you are responsible for paying off a single loan. This strategy is not ideal for everyone, so you should educate yourself on the advantages and disadvantages to make the best decision.


1. Combine several payments into one – It allows you to be organized and creates convenience since you have to make a single monthly payment.

2. Obtain lower interest rates – If you have good credit, most debt consolidation options, whether a personal loan or a home equity line of credit, offer lower interest rates than credit cards.

3. Reduce your monthly payments – If the interest rate on your new loan is lower, chances are your monthly payment will be lower too. Also, if you pay on time and consistently, you will avoid any penalties for late payments and for going over the credit limit.

4. Pay your creditors 100% – You would settle debts to your creditors and preserve a positive payment history, if the accounts have been in good standing with your creditor.


1. It may cost you more money in the long run – Despite getting reduced interest and payments, if the repayment period is extended, you may end up paying more at the end of the life of the loan. Also, depending on the consolidation method you use, your total debt may increase with the addition of fees associated with the loan or fees for transferring balances from one card to another.


2. You can take on more debt – Whether by necessity or by choice, if you go back to using cards you’ve already paid off, you’ll be faced with paying off the original debt plus any new debt.

3. It can cost you more – If you consolidate your cards with a secured loan, such as a home equity line of credit, missing payments puts you at risk of losing your home or any other valuable possessions you used to secure your loan. You should avoid putting things at risk whose total value is greater than the amount of your credit cards.

4. Negative effects on your credit – Consolidating debt can affect your credit score by changing your credit utilization. You don’t eliminate the debt, but combine it and affect the balance of debt and available credit. If you close your paid off credit cards, your score also suffers. Many times a consolidation remedies a symptom, but does not solve a larger financial problem. Before determining if this strategy is right for you, explore the causes of your debt and consider other repayment options such as a debt management program, self-payment strategies or working directly with your creditors.

Author Bio:

I am Nikesh Mehta, owner and writer of this site.

Nikesh Mehta - Image

I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected] or LinkedIn profile.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.