Do you have a dark cloud of credit card debt looming over your head?

It’s easy to get into…And sometimes it can feel impossible to get out of.

But it’s not impossible. You have plenty of options that can help get you on the path to being debt free in no time.

One of these options is credit card debt consolidation. But how good of an option is it?

In this article, we’ll look at:

Paying off your credit card debt

The first thing you should know about credit card debt is that you’re not alone. According to this article, 41.2% of all American households carry some sort of credit card debt – $9,333 of it on average.

That’s a lot of money…And it keeps getting worse. The estimated national credit card debt increased by 3 billion dollars between 2017 and 2018.

How credit card interest works

Part of the reason credit card debt is so rampant is because of the high interest rates. Most cards have absurdly high APR – you’re lucky to get one under 15%. To put this in perspective, we often argue over 1% differences in interest rates when buying a car.

APR (Annual Percentage Rate) is how much you’d be charged in interest if you kept the balance on your credit card for an entire year. To understand it on a daily basis, simply divide the percentage by 365 days.

15% APR / 365 days = 0.0411% daily rate

So if you had a balance of $1,000, for every day you don’t pay it off, you gain 0.0411% in interest. 1 day later and your new balance is $1,000.41.

And it’s compounded, so the interest is calculated based on the new daily balance. After 30 days, you’d be looking at a $1,012.33 balance.

Related: Buy Now, Pay Later With 0% APR Credit Cards

This seems pretty harmless for now, but let’s look at some bigger – and more realistic – numbers to see how scary it can get…

Credit card debt calculator

Say you have $5,000 in credit card debt at a 15% APR and you can only afford to make $100 monthly payments.

This debt will take you 79 months to pay off – that’s 6 and a half years. And by the end of it, you’ll have paid $2,895.53 in interest alone…making your total payment $7,895.53.

Play around with our credit card interest calculator and see what your situation looks like:

Secured vs unsecured debt

Some words you may hear thrown around a lot when discussing debt is secured and unsecured. Before we get into actually paying off your debt, it’ll help to know the difference between these two types.

Unsecured debt

Unsecured means there’s no collateral associated with the debt. You aren’t asked to give a downpayment and you don’t have to put your home on the line. This is what credit card debt falls under and it’s usually easier to be approved for.

But don’t get too comfortable – you’ll still be hounded to repay unsecured debt. It can also tank your credit score, making it hard (sometimes nearly impossible) to take out loans in the future and skyrocketing your future APR.

Secured debt

Secured debt, on the other hand, has collateral. This means your interest rates will be lower – sometimes a lot lower. But you have to put something on the line in exchange.

This can mean a downpayment, your home equity, or other assets.

If something unexpected happens and you’re unable to pay your debt, you could risk losing your house. Unsecured debt means the credit card company will bug you day and night to pay up, but at least they can’t take your house away…

Should you consolidate your credit card debt?

The question we’ve all been waiting for, should you consolidate your credit card debt?

It seems like a great deal, doesn’t it? Take out a loan at a lower interest rate than your credit card APR, pay off your cards, then repay the debt at fixed monthly payments all to one place.

You’ll save money on interest and streamline the process, making it easier to incorporate into your budget, right?

But it comes with some considerable risks – and you’re not really addressing the root of the problem.

If you don’t deal with your overspending habits, you’re likely digging a bigger hole for yourself by taking out another loan. And if you trade your unsecured credit card debt for a loan secured on your home…now a lot more than just your credit score is on the line.

Let’s take a look at each of your options.

Loan type Pros Cons
Unsecured consolidation loan -Lower interest rates than credit card
-Easier acceptance
-Doesn’t require collateral
-Higher interest rates than a secured loan
Secured consolidation loan -Lowest interest rates -Harder acceptance
-House or other major assets are on the line
Debt management program -Professionally assisted -Have to rely on the company to make the payments on time

Unsecured personal loan

Unsecured debt consolidation loans are offered online by most banks. This, combined with their easier acceptance rate and fast response time, makes these loans pretty attractive.

But remember that because they’re unsecured, the bank has a lot more on the line. So the interest rates will be higher than the secured option. They’ll still likely be lower than your credit card APR though.

Secured consolidation loan

If you’re confident in your ability to pay back your loan, have a good credit score, and want to save some money in interest payments – a secured debt consolidation loan is a (risky) option.

The bank is taking less of a risk, so the interest rates are the lowest of the consolidation options.

But something will be put on the line. If you take out a home equity debt consolidation loan, for example, you risk your house being foreclosed on.

These should be taken out carefully and with much consideration. The fixed monthly payments will make it easy to factor into your budget – consider using that to your advantage and make a plan for repayment.

Debt management program

Unlike the other two options, a debt management program is not a DIY affair. You’ll get assistance by a credit counselling team who will negotiate lower interest rates on your behalf, even sometimes lower payments in general.

Your credit card accounts are frozen while you’re repaying your debt with this option, which will ensure you can’t rake in more debt.

A con is that the debt management agents essentially act as a middleman between you and your credit card, introducing some possible complications in payments.

An alternative solution: Balance transfer credit cards

But you have another DIY option that doesn’t require you to take out a loan – balance transfer cards.

Some cards offer several months of low or no APR, saving you a lot of money in interest.

For example, the will give you 0% APR on balance transfer for 21 months – that’s almost 2 years. If you were originally paying 15% APR on a $5,000 balance, you’d save $1,294.65 in interest.

Plus it has no annual fee and 9 different types of travel and purchase insurance.

Just make sure you make a plan to pay off your balance before the deal ends or your new APR might be higher than it was originally.

Check out more details on Citi’s card here:


So, should you consolidate your credit card debt? Well, it depends.

Are you willing to make a definite plan to make sure your spending habits change, so you can avoid being in debt for the future?

Is the risk with a secured loan too big for you to take on?

Be sure to research your options and be honest with what you can handle.