When you consolidate your credit card debt, you’re taking out a new loan to pay off your old loans. If the interest rate on your new loan is lower than the average interest rate on your credit cards, you’ll spend less money on interest while paying down your debt. However, there are a number of other considerations to think about before deciding whether debt consolidation is right for you.

Below is a list of the most common questions borrowers ask about consolidating credit card debt.

Should I consolidate my credit cards?

Credit card debt is certainly not cheap. At 16.92%, the average interest rate is at an all-time high and the bad news is, it’s expected to keep going up. If you’re one of the many Americans with several high-interest credit cards, consolidation could save you money and help you pay down your debts sooner.

Before you make a move on consolidation, make a list of all your credit cards, their interest rates, and how much you can reasonably pay a month. Using a debt-payoff calculator, calculate and make a note of how long it will take you to pay off each card and how much interest you will pay over the life of the loans. Once you have this information, compare it to the total amount of principal and interest you’d pay for a consolidation loan -- be sure to include any fees you would incur. If consolidating will significantly decrease the amount of interest you’ll pay and/or help you get out of debt quicker, then it’s something you should seriously consider.

When should I consolidate my credit card debt?

Deciding the best time to consolidate your credit card debt depends on how much debt you have and how you want to go about consolidating. In most cases, you should only move forward with consolidating if it will save you interest over the life of the debt and/or you need to lower your monthly payments to manage your budget.

Before anything else, you should be at a place where you can set a budget and more importantly, stick to it. Otherwise you risk going further into debt and potentially losing assets you put up for collateral.

How can I consolidate my credit card debt?

There are several consolidation options, each with its own benefits and drawbacks. You can:

  • Take out a personal loan: These may have lower interest rates than your credit cards; however, personal loans often have fees to open and require a good credit score for approval and to get the best interest rate.
  • Use a balance transfer credit card: If you qualify, you could get a new credit card with a 0% or low-interest introductory rate. This rate generally only applies the first year and many cards charge a balance transfer fee, which is often a percentage of the amount you are transferring. Your transfer will also be limited to your credit limit.
  • Borrow against your home’s equity: Home equity lines of credit (HELOCs) and home equity loans usually have significantly lower interest rates than credit cards, but they are secured by your home, which means if you are unable to pay for your debts, you could lose your house. There are often extra costs and fees to get these types of loans, such as origination fees, closing costs and appraisal fees.
  • Work with a credit counseling organization: Generally nonprofit, these organizations will work with you to create a payoff plan. Most often you will make payments to the organization, and they pay your creditors, though sometimes they just help negotiate lower rates on your current credit cards. Many of these organizations will require you to close your cards once they are paid off, which could hurt your credit.

Does consolidation get rid of my credit card debt?

Yes and no. While consolidating will eliminate the number of bills you have, you will still have debt. Consolidation is simply obtaining a new loan to pay off your outstanding loans, so you will still have debt and payments to make, but if done right, you could pay less interest and get out of debt sooner.

What is the best way to consolidate credit card debt?

That depends on your situation and the options you qualify for. First take an assessment of your total debt and your credit score, then consider your options and the associated fees. If you have a home with equity, you may be eligible to get a loan with a fixed rate that is lower than a personal loan and doesn’t jump significantly after an introductory period, like a balance-transfer card.

What are the benefits to consolidating my debt?

There are a number of benefits to consolidating your debt. If you have several high-interest credit cards, for example, you could significantly lower your interest rate. Obtaining a new loan to pay off your outstanding loans can also make it easier to pay your bills and budget for, since you’ll have a single due date and set payment amount. Depending on what debt you are consolidating and how, you could also improve your credit score.

What are the drawbacks to consolidating my debt?

For some, having a fresh loan can quickly lead to more spending, which results in deeper debt and possibly more interest payments. It often costs money to get a new loan, e.g., home equity loans charge origination fees and balance transfer credit cards charge a transfer fee. To be eligible for the best interest rates, you often need a good credit score.

Is it a good idea to tap into my home equity do consolidate my debt?

Possibly. Both home equity loans and home equity lines of credit are secured loans that use your home as collateral. In other words, if you don’t pay back your loan, you could lose your home. If you don’t have a good plan to pay back your debt, then tapping into your home equity can be risky.

However, if you are good at following a budget, you can often get a lower loan rate with a home equity loan than using other types of loans.

Can I consolidate more than just credit card debt into a new loan?

Yes you can, though your options to do so will be slightly more limited and the benefit of doing so may not be as great.

Credit card balance transfers are typically only applicable to existing credit card debt; it can be difficult to transfer the balance from your auto loan, for example, to a new credit card with an attractive interest rate. Personal loans offer more flexibility, though not all lenders will allow you to pay off student loans with the funds. Home equity solutions offer a greater degree of flexibility, generally allowing you to consolidate credit card balances, student loans, and other types of debt.

Will consolidating my credit card debt hurt my credit score?

It can.  Applying for any type of loan, whether that’s a credit card, a car loan, or mortgage, will require a hard credit pull and can cause a small dip in your credit score (2-5 points). If you use a balance-transfer card that will be at its maximum credit limit or close to it, the resulting high credit utilization can lower your credit score as well.

If you use a loan to pay off your credit card, you can actually see an improvement in your credit score, as your credit utilization decreases. Making regular on-time payments on any debt will help as well.