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How to Consolidate Credit Card Debt without Hurting Your Credit

May 9, 2023

Do debt consolidation loans hurt your credit? The short answer is yes, but only temporarily if you are smart about how you consolidate. By doing your debt consolidation right, you will gain far more in the long term by getting your debt problem under control. Here’s how to nail your debt consolidation—and get the credit you deserve for doing it.


If you’re juggling multiple credit card payments, shifting balances between several accounts, or racking up late or missed payment fees, it might be time to take a deep breath and consider a debt consolidation plan. While taking on even more debt at this point may seem scary, it’s important to weigh the short-term pains versus the long-term gains of debt consolidation.

Many people worry that opting to consolidate their card debt will damage their credit even further. While it is true that taking out further debts will affect your credit score, this must be viewed against the damage your out-of-control debts are already doing to your creditworthiness. You can also minimize this effect by being wise about how you do your debt consolidation.

Below, we look at what credit card debt is and how it works. We’ll also examine how to consolidate credit card debt without hurting your credit and consider some of the major pros and cons of debt consolidation through different methods.


Debt consolidation means transferring money you owe to multiple creditors into a single account. To do this, you borrow a lump sum from a single source, usually at a lower interest rate or over a longer term, and use the money to pay off all or some of your outstanding debts.

When used together with a strict budget and a serious commitment to avoid borrowing more money, debt consolidation can allow you to save money on interest payments and escape long-term indebtedness that can cripple your financial future.


Debt consolidation allows you to exchange multiple loans with different interest rates, fees, penalties, and payment terms for a single source of borrowing. Depending on your situation, consolidating your debt in this way will either allow you to pay less in interest over time, or to pay less each month by allowing you to repay what you owe over a longer period.

You’ll also save money by paying less in penalties for late or missed payments, service fees, and monthly or annual fees for credit cards you are unable to pay off.


While struggling to pay your existing debt is likely to have already lowered your credit score, debt consolidation also has an impact on your record because it involves further borrowing on your part. In most cases this effect is temporary, and you should see a significant improvement as time goes on, but this depends on how you choose to consolidate your debt.

Let’s review how each of the most common forms of debt consolidation affects the major factors that go into determining your credit score.

Balance Transfer Cards

A balance transfer credit card lets you add your existing credit card balances to a new account to allow you to take advantage of a better annual percentage rate (APR) or other more favorable payment terms. This makes balance transfer cards a popular way to manage outstanding debt on two or more high-interest cards.

These cards allow you to add existing balances for a low or no-cost fee and usually offer a break on interest charges for an introductory period of six months or more. That can bring valuable breathing room to get ahead of payments, provided you do not use your new card for any purchases.

Opening a balance transfer card will likely hit your credit score by several points when you first open it since it will be seen as another source of high-interest debt. But this should quickly be offset by the reduction in borrowing on your other cards and fewer late or missed payment charges.

Remember to keep these credit cards open even after you have paid down your balance, as this will boost your overall credit utilization rate. Make a small purchase every month on each card and pay it off in full.

The trick with balance transfer cards is to pay off what you owe quickly to save money on interest and then, of course, to keep your balance under control. Otherwise, you will have to pay off a large balance over a longer period at a relatively high interest rate.


As the most popular way to consolidate debt, a personal loan lets you exchange the variable high-interest rate debt of two or more credit card balances for a single fixed monthly payment. While it can take a while to pay down your total debt with a personal loan, you’ll know exactly how much you owe, how much you need to pay each month, and when your debt will be clear.

Personal loans are easy to apply for and bring simplicity and predictability to the chaos of juggling several fast-growing credit card balances. When used with a realistic monthly budget and a commitment to stick to it, it’s a proven way to get rid of mounting debt while rebuilding your credit.

While applying for and signing on a personal loan will lower your credit score a few points, the fact that this is usually a fixed-rate loan with a significantly lower APR limits the impact. You should see your score start to climb as you cut out the late and missed payments and replace maxed-out credit limits with regular minimum payments.

Over time, your improving debt-to-income ratio and reduced high-interest debt load will help improve your score further. Also, adding a new form of borrowing to your portfolio can increase the mix of credit products you use and will help as well. You can boost the effect of all these factors on your score by opting for a secured loan using a vehicle, boat, or cash as collateral.

Home Equity Loans

A home equity loan is a lump sum payment borrowed against the equity you have built up in your home by paying down your mortgage. Home equity loans can be significant, especially if you’ve been in your home a while and interest rates are far lower than credit cards or even personal loans because the debt is secured by the property itself.

A home equity loan can make sense if you are determined to turn the page on a sustained period of high-interest borrowing, but still need to pay down a sizable debt. You will effectively exchange several variable high-interest payments for a single, usually fixed payment that is paid off over an extended period of up to 30 years.

A home equity loan, however, includes many of the high costs of taking out your original mortgage including origination, title search, and appraisal fees, plus closing costs of up to 5% of the loan amount. That can make using your valuable home equity to pay off your short-term credit card debt uneconomical in most cases—and you put your home itself at risk.

That said, a home equity loan will improve your credit score significantly over time (after the initial drop when you apply and take out your loan) because you are exchanging high-interest, short-term borrowing for long-term, low-rate secured borrowing.

Unfortunately, if your credit card debts are high enough to make it economical to borrow against your home to pay them, your credit score is likely to have already been severely damaged.


Debt consolidation makes sense if you are struggling to pay several sources of high-interest borrowing, but is not the right choice in every case. Let’s take a look at the pros and cons.

Some of the major advantages of debt consolidation include:

  • A lower interest rate or a more manageable longer-term loan
  • A single, predictable monthly payment
  • Quick, cheap, and easy to apply
  • A chance to improve your credit score, especially if you replace out-of-control debt on several credit cards with a single, fixed-rate personal loan

At the same time, some potential downsides of debt consolidation include:

  • A higher interest rate if your credit score is already low
  • Added costs, especially if you need to take out a home equity loan
  • Missing out on your credit card rewards
  • The temptation to rack up more debt


Credit card balances and other forms of high interest can creep up on you and make it harder to reach your long-term goals and dreams. If unmanageable debt is standing between you and your future, a personal loan offers a tried-and-true way to get back on track.

A personal loan from Fibre Federal lets you pay off loan expenses with ease by offering you a fixed interest rate and predictable payments. You’ll know what to expect each month and be able to start planning for the future. Best of all, you’ll begin rebuilding the credit you need to borrow money for things that really matter like a car, home, or college education.

At Fibre Federal, we offer our members great personal loans with:

  • Competitive, fixed rates
  • Flexible terms from 12-60 months
  • Skip-a-Pay once a year with no penalty
  • No strings: use your loan for debt consolidation or almost anything else

Talk to us today about a personal loan to help you reach your financial goals. Our friendly staff will help you find a loan with a monthly payment that works for you and an interest rate that will help you build the future of your dreams. Click below to learn more.

See Our Personal Loan Options & Benefits

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