5 surprising credit card debt consolidation benefits to know
Credit card debt is growing fast in today's economy. Between the average credit card interest rates sitting above 23% and interest charges compounding daily, even small purchases can balloon into large balances. Add in today's high costs for housing, food and basic needs, and many Americans have found themselves trapped in a cycle of growing credit card debt.
Debt consolidation offers a potential solution if you're facing high balances across multiple cards. By consolidating your debt, you roll multiple credit card payments into one loan, often with a better interest rate and predictable payments. Think of it as trading multiple high-interest debts for a more manageable loan.
We consulted three experts from financial planning organizations to learn what makes consolidating debt worth it. Here's what they want you to know if you're thinking about this approach.
Learn about the many debt relief strategies available to you now.
5 surprising credit card debt consolidation benefits to know
If credit card debt feels overwhelming, you're not alone — and there's hope. According to Tyler Crawford, president of BHG Financial, over 70% of customers keep their debt under control after consolidating.
You have several options for consolidation. Many banks, credit unions and online lenders offer personal loans for this purpose. Balance transfer credit cards are another option worth considering.
Combining multiple debts into one loan can improve your finances in unexpected ways. Here are five powerful benefits:
1. Improvement to your credit score
"If you move credit card balances into an installment loan, it can lower your credit utilization rate," says Margaret Poe, head of consumer credit education at TransUnion. This rate heavily impacts your credit score. Lower utilization typically means a better score.
Crawford highlights another credit score benefit.
"Paying off multiple high-interest credit cards with a single loan [can help you] avoid late payments," he says. The new loan comes with one monthly due date, making it easier to pay on time. Regular, punctual payments help build a stronger credit score.
Find out how to get rid of your credit card debt today.
2. Lower interest rates
A debt consolidation loan usually offers much lower interest rates than credit cards.
"Saving money on interest is a huge reason to do debt consolidation," says Andi Wrenn, a member of the board of directors for the Association for Financial Counseling, Planning Education (AFCPE). With today's steep credit card rates, switching to a lower-rate consolidation loan can save you thousands in interest charges.
The savings grow even bigger when you make extra payments. Each additional dollar paid reduces your principal balance directly. Lower principal means less money wasted on interest over time.
3. Reduced mental burden
Credit card consolidation does more than prevent missed payments. It can relieve the daily anxiety and mental burden of managing multiple debts. With a predictable payment, you'll feel in control of your finances and less overwhelmed by the constant stress of tracking various due dates and balances.
4. Fixed repayment terms
Unlike credit cards with variable interest rates, Crawford explains that consolidation loans give you a clear timeline and fixed payment amount. This predictability makes budgeting much easier.
Credit cards can keep you in debt longer because minimum payments barely cover interest. But a consolidation loan gives you a clear finish line. You'll know from day one when you'll be debt-free. Each payment brings you closer to that goal, with no surprises along the way.
5. Access to additional financial resources
Many lenders offer financial counseling and budgeting tools when you consolidate. These resources can help you develop better spending habits. You'll learn strategies to avoid future debt and create a realistic budget that works for your lifestyle. Some may even provide personalized guidance to help you tackle specific challenges, such as building emergency savings and planning major purchases.
The bottom line
Consolidation for debt relief works best when paired with better financial habits and intentional spending. Crawford warns that borrowers can return to recklessly using credit cards after consolidating, not realizing this creates an even bigger debt problem.
If you're considering credit card debt consolidation, start by learning everything you can about potential lenders.
"Read the fine print and ask good questions — you don't want to be worse off because you didn't," says Wrenn. Then, compare offers from several reputable debt relief companies. Review interest rates, fees and extra services to choose one that fits your needs and helps you stay debt-free in the long term.
