Finding yourself juggling payments across multiple credit cards can quickly start to feel overwhelming. As interest costs and minimum payments rise every month, your debt payoff timelines extend while money struggles worsen.
Consolidating numerous credit card debts into one loan or credit card with a lower monthly payment and often a lower interest rate may provide the relief you need. But with so many methods available, what is the best way to consolidate credit card debt in the fastest and most strategic manner?
In this guide, we’ll examine some of the most effective ways to consolidate credit card debt in the UK, including balance transfer cards, personal consolidation loans and debt management plans.
- Consolidating multiple credit card debts simplifies unmanageable repayments into one lower monthly bill, often at a reduced interest rate.
- 0% balance transfer cards allow you to consolidate your credit card debts with zero interest to begin with. But once the promotional period ends, interest may rise sharply.
- Personal consolidation loans can be used to consolidate most kinds of debt, including credit cards. They offer a set monthly payment schedule and a fixed end date for becoming debt-free.
- Debt management plans allow you to consolidate your debts through a third party, who liaises with your creditors to negotiate lower monthly payments. This is an informal solution, so your creditors are not obliged to agree.
- Compare your options carefully based on your unique financial situation. In some cases, consolidating could mean you pay more in interest over time.
- Avoid renewed overspending and debt recurrence post-consolidation by spending cautiously and intentionally going forward.
The Benefits of Consolidating Credit Card Debt
Consolidating credit card debt means combining multiple card balances into one, allowing you to pay off those debts through a single monthly payment. There are many credit card debt consolidation methods, including balance transfer cards, loans and debt management plans.
The main benefit of consolidation is that it simplifies your payment schedule. Rather than keeping track of different due dates, amounts, and interest rates for various cards, you’ll have one easy payment to budget for each month.
You may be able to qualify for a much lower interest rate by consolidating, which can save you money and prevent your debt from snowballing. Consolidation can also be used to spread out your repayments over a longer period, freeing up cash flow in the short term. However, extending the repayment term means paying more in interest over time.
How Do 0% Balance Transfer Credit Cards Work to Consolidate Debt?
One of the most widely used credit card consolidation tools, balance transfer cards allow combining multiple high interest rate credit card debts into one. Here’s how they work:
- You open a new balance transfer credit card and merge your existing card balances into the new account.
- The balance transfer card offers an introductory 0% APR promotional interest rate for a limited period, typically 12-24 months.
- You then make repayments during the 0% interest period before higher rates resume.
- Most balance transfer cards charge a one-time balance transfer fee, typically around 3-5% of the amounts transferred.
Overall, balance transfer cards provide a quick and simple way to consolidate credit card debt without closing existing accounts or taking out a loan.
But this route requires financial diligence: you must ensure you can repay the total balance before deferred interest kicks in. Otherwise, your debt may begin to snowball quickly.
Is a Balance Transfer Card Right for Me?
0% balance transfer cards work best as a credit card consolidation strategy when:
- You have a high credit rating. Most balance transfer cards are only eligible for those with ‘good’, ‘very good’ or ‘excellent’ scores.
- You’re looking to consolidate high-interest debt spread across 2-3 credit cards. Balance transfer cards typically aren’t suitable for consolidating overdrafts, payday loans or other debts.
- You can realistically repay all your credit card debt in full before the introductory 0% APR period ends. This avoids getting trapped paying potentially huge, deferred interest fees on remaining balances.
Balance transfer cards offer simplicity through quick consolidation without needing to go through lengthy personal loan applications. Just be sure to pay off everything you owe before the temporary low interest period ends.
Could a Personal Debt Consolidation Loan Be a Better Option?
Debt consolidation loans are another popular way of combining credit card debts. This method involves taking out a new personal loan large enough to cover your existing credit card balances (and any other debts). The funds are used to pay off all of your debts, leaving you with only one loan to manage.
You then make a single fixed monthly instalment payment on the consolidation loan over an extended repayment term, typically 2-5 years. Consolidation loan interest rates are often lower than credit card rates, though the exact deal you’ll be eligible for may depend on various factors, such as your credit score and income.
Who Are Consolidation Loans Ideal For?
Consolidation loans may be a good option for:
- People with fair/average credit seeking simplicity. Those with stellar credit typically get the best loan rates and fastest approvals.
- Individuals who owe a significant amount of credit card debt that would take longer to repay than the introductory low-interest period on a balance transfer card.
- Borrowers who prefer the structure of fixed instalment loan payments over a set period, with a clear end date in sight, rather than revolving credit.
- Anyone needing to consolidate broader debts beyond just credit cards, such as personal loans, payday loans, overdrafts, or utility bill arrears.
The Main Pros and Cons of Consolidation Loans
Consolidation loans typically offer a lower fixed interest rate for the duration of the loan, leading to interest savings.
While those with high credit scores usually have access to the most favourable rates, some specialist lenders do offer consolidation loans to those with poor credit. They can be more accessible than balance transfer cards for individuals who have a history of missed payments, CCJs or high credit utilisation.
Consolidation loans also offer more flexibility than balance transfers when it comes to loan amount and term length, allowing you to select from repayment terms on offer according to your needs.
However, there are some potential downsides to note:
- New consolidation loan applications involve hard credit checks – too many of these can damage your credit score. It’s always a good idea to use an eligibility checker first for the best chances of being approved.
- Interest starts accruing immediately, with no interest-free grace period.
- There may be an administration or setup fee required to take out the loan.
- A loan is a long-term financial commitment. You’re locked into set monthly payments, allowing less flexibility if budgets tighten.
- If you fall behind or default on payments, you could face consequences such as penalties or legal action.
Overall, personal consolidation loans make the most financial sense when you need to want to consolidate multiple high-rate credit card and other unsecured debts into one loan with a predictable monthly payment. It’s important to read the terms and conditions carefully and crunch the numbers to ensure it’s the right move for you.
Is a Debt Management Plan a Good Credit Card Consolidation Option?
If the weight of multiple credit card interest rates and minimum payments feels overwhelming, and you cannot afford monthly payments or are unable to consolidation debts through a balance transfer card or consolidation loan, you could consider debt management plans (DMPs).
This is a type of informal agreement between you, your creditors and a DMP provider. The provider liaises with your creditors on your behalf to negotiate lower monthly payments and reduced interest rates and fees. You then make a single monthly payment which is split between your creditors.
Because the agency works directly with your creditors for you, account maintenance and communication with creditors can be minimised. However:
- You will be required to close your credit card accounts, which could impact your credit balance and means you can’t use the cards again.
- Your creditors may make a note on your credit file that you are on a debt management plan, which could influence future lenders.
- You will be paying reduced payments on a DMP and so it can take a longer period to repay debts in full.
- DMPs are not legally binding, so your creditors do not have to agree to the plan. They are not obliged to lower your interest rates or accept a lower monthly payment.
- Some DMP providers charge a fee, which is typically a percentage of the monthly payment. This can mean it takes longer to pay off your debts and that you pay more in interest over time.
It’s also important to note that while you’re on a DMP, you still owe multiple debts to different creditors. While your monthly payments are consolidated, your accounts remain separate.
Should I Use Savings Instead of Consolidating Credit Card Debt?
If you have any personal savings that you could put towards your debts, you may be wondering if you should use them to pay off your credit cards rather than consolidating. This does have some benefits, but there are also risks to consider.
On the pro side, you’d avoid taking on additional debt in the form of a consolidation loan. This means no loan payments or additional interest accrual. Paying with savings also allows you to pay off debts right away, rather than dragging out repayment.
However, depleting your savings means that if an unexpected expense comes up, you may need to rely on credit again. It’s usually recommended to have 3-6 months’ worth of living expenses in an emergency fund. Draining this savings safety net could be risky.
Depending on your situation, a balanced approach may be best. For example, make a lump-sum payment from savings to reduce balances, but maintain some emergency reserves while consolidating the rest into an affordable monthly payment plan.
Tips for Choosing the Best Way to Consolidate Credit Card Debt
When determining which credit card consolidation strategy makes the most sense for your unique situation, consider factors such as:
- Your current credit score and odds of being approved for consolidation loans and balance transfer cards.
- The total amount of credit card debt you need to consolidate, and how quickly you’ll be able to repay it.
- Whether you’d prefer the structure of a set monthly repayment schedule with a fixed end date, or the flexibility of a balance transfer card with revolving credit.
- If you need to consolidate broader debts beyond just credit card balances, like overdrafts or payday loans, which would require a consolidation loan rather than balance transfers.
- If you are unable to repay your debts and consolidation through balance transfer or consolidation loan are right for you, you may need to consider a DMP or other alternative debt solution.
There’s no one-size-fits-all approach to credit card consolidation. Always evaluate factors like your specific financial profile, total debts, behaviour tendencies, and other personal circumstances.
How to Avoid Taking on More Debt After Consolidating
While consolidating your credit cards can feel like a “fresh start”, it’s vital not to use it as an opportunity to go back to carefree spending habits.
Failing to properly manage your finances after consolidating could force you to rely on credit or take out additional loans. You’d then have multiple payments to manage each month, undermining the point of debt consolidation.
After transferring balances away or paying off cards with a loan, set up a strict monthly budget and track your spending to ensure you’re prioritising your necessary expenses and savings. It can also help to remove the temptation to overspend – for example, by hiding or cutting up your credit cards, or deleting your accounts with online retailers.
The key to achieving long term debt freedom is pairing the benefits of consolidation with cautious, intentional spending habits that help avoid recurring dependence on debt. Speaking to a professional debt advisor can help you determine the most strategic path forward.
Review Your Credit Card Debt Consolidation Options
It’s critical to be proactive when facing credit card debt, as interest can accumulate quickly. Addressing consolidation early on, while balances are lower, can help prevent your debts from snowballing out of control.
At Consolidation Expert, we may be able to match you with a suitable debt consolidation loan provider. Our lenders work with applicants with a range of credit scores and offer loans from £5,000 up to £75,000.
Apply online with Consolidation Expert today to check your eligibility. The path to repaying your credit card debt start here.