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May 28, 2025

How to Consolidate Credit Card Debt While Adding a Cash Cushion

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Carrying a healthy balance on multiple credit cards is a responsible way to establish and maintain a credit history—good credit scores often translate to greater borrowing power. But high interest rates on credit cards make it easy to rack up balances that are too high if you’re not careful. 

If you sense your credit card debt is inching toward an uncomfortable level, or you want to find a way to save some money while addressing it, credit card debt consolidation is a common way to pay off your debt. Learn how to consolidate credit card debt and how leveraging the solution may help you keep more cash on hand for unexpected expenses.

 

Key considerations

  • To pay off your credit card debt, you can get a personal loan, apply for a home equity line of credit (HELOC), or leverage balance transfer credit cards.
  • Consolidating generally makes sense if the new debt has a lower interest rate than your credit cards. In some cases, a debt consolidation loan can actually save you money over time and leave you with extra cash in your pocket each month.
  • The best way to consolidate debt will depend on your outstanding card balances, monthly income, and expenses. Your credit score will also determine the rates and terms you qualify for. 

 

What is credit card debt consolidation?

Debt consolidation is a process that involves combining multiple debts into a single loan, often at a lower interest rate. When used to attack credit card debt, many people opt to consolidate balances with varying annual percentage rates (APRs) into one loan with a fixed monthly payment. 

Exactly how you pay off your credit card balances depends on the chosen consolidation product or method. Your options for how to consolidate credit card debt include:

 

1. Apply for a debt consolidation loan

Online lenders, banks, and credit unions offer debt consolidation loans, sometimes called personal loans for debt consolidation, which give you a lump sum to pay off your balances. These loans simplify your payment schedule and can have lower rates than credit cards, especially if you have excellent credit. However, you may be required to pay an upfront origination fee. Fees typically range from 1% to 8%.

 

2. Leverage a credit card balance transfer

Using a balance transfer card, you can move credit card balances from other cards to a new card with a lower introductory rate. These cards can save you a significant amount of interest, as long as you pay down the balance within the allotted promotional timeline. You might also have to pay a fee when moving balances from one card to another. Still, these cards can be a wise option for people with good credit scores who have debt that falls within the new card's credit limit.

 

3. Consider a debt management plan

If you don’t qualify for other consolidation options, you may be able to leverage a debt management plan offered through a credit counseling agency. Here, a credit counselor will contact your creditors on your behalf and negotiate a single monthly payment amount you can comfortably afford based on your outstanding debts. Consider this only after exhausting other options, as creditors aren’t obligated to work with you, and you risk severely damaging your credit score.

If you need to access a lump sum of money to pay off debt, you also have the following options:

 

1. Take out a home equity loan

If you have significant equity in your home, you can use it to pay off debts with a home equity loan or home equity line of credit (HELOC). Home equity loan rates are generally lower than personal loan rates, but they often come with closing costs. Plus, you’ll put your home at risk if you cannot make payments. 

 

2. Withdraw from your 401(k)

If absolutely necessary, you can borrow half of the amount in your 401(k), up to $50,000 per the IRS, to help pay off your debts. The interest rates on these loans are quite reasonable, and they don’t show up on your credit report, so they won’t impact your credit score. However, this could drastically decrease your retirement savings, and the penalty for defaulting is significant.

 

Why consolidate your credit card debt? 

Consolidating credit card debt combines multiple balances into a single, more manageable monthly payment. Many who choose to bundle balances receive lower, fixed interest rates, helping you get control of your finances and work towards a debt-free future.

For credit card debt consolidation to make sense, the new consolidation should generally have a lower interest rate than your credit cards. This way, you’ll save money on interest and have more funds available to put toward other expenses.  

Pros of debt consolidation:

  • Simplified payments: Tracking single payments makes managing finances easier and reduces stress. 
  • Potential for lower interest rates: If your credit score is up to par, you may be able to secure a lower interest rate than you're currently paying on your existing debts.
  • Improved credit score: While applying for a new loan or credit card could temporarily decrease your score, the score could increase over time as you make consistent, on-time payments and lower your credit utilization.
  • Possible to get a larger loan: Debt consolidation loans often have higher amount limits, which means you can borrow enough to consolidate larger amounts of credit card debt. For example, BHG Financial offers loan amounts up to $200,0001 for the purpose of debt consolidation.

 

Cons of debt consolidation:

  • Upfront fees are common: Many debt consolidation loans come with origination fees, while other products may come with balance transfer fees or annual fees, which can contribute to the overall cost.
  • Risk of accumulating more debt: You risk overspending if you don’t first address the habits that led to debt accumulation. For example, if you pay off high-interest debt but continue to use your cards heavily, you may fall into a vicious cycle.
  • Higher long-term costs: While longer repayment terms can help keep monthly payments low, the extended timeline also leads to higher interest costs over time.
  • Savings are not guaranteed: Borrowers with lower credit scores may have a tougher time securing lower interest rates on a loan or line of credit. Debt consolidation often makes the most sense for individuals with good credit histories and responsible spending habits.

 

How can a personal loan consolidate credit card debt?

One common way to address credit card debt is to use a personal loan for debt consolidation offered by lenders. This is an installment loan that provides a lump sum of money to pay off your outstanding balances. Instead of paying several creditors by their due dates, you’ll only pay one creditor each month: the lender.

Before you're approved for a debt consolidation loan, lenders will evaluate your credit history and personal finances to determine whether you qualify and at what terms. Loan amounts typically range from $1,000 to $100,000, although BHG Financial offers amounts as high as $200,000.

 

Can a debt consolidation loan save you money?

There are several ways a debt consolidation loan can save you money. 

  1. In many cases, the interest rate on a debt consolidation loan is lower than the rate on your credit card(s). This helps you save significantly on the total interest paid toward your debt. 
  2. Your monthly payment on a consolidation loan will likely be smaller than your existing payments because future payments will spread out over a new, extended loan term. If your budget allows, consider making extra payments with the money you save each month to pay off the debt faster.

 

To ensure you get the most favorable rates, shop around and focus on lenders that offer a simple online prequalification process. A payment estimator can also help you explore how your monthly payment changes based on the repayment term.

 

Consolidating personal credit card debt FAQs

Consolidating personal credit card debt can simplify your finances by combining multiple debts into a single monthly payment with more manageable interest rates. In the long run, this can save you from spending more money than you anticipated or previously agreed to on in-terest payments in the future.

Personal debt consolidation can impact your credit score differently depending on the method chosen. For example, applying for a new loan or credit card for consolidation may result in a temporary dip in your credit score due to inquiries, changes in credit utilization, and your his-tory using credit-based financial products. However, making timely payments on the consoli-dated debt can positively affect your credit score by demonstrating responsible financial man-agement.**

Yes, personal debt consolidation can be applied to various types of debt, including personal loans, medical bills, and student loans, in addition to credit card debt. Consolidating multiple debts into a single payment can streamline your repayment process and make it easier to man-age your finances overall.

With highly specialized financing options for accomplished professionals, BHG Financial offers personal loans up to $200K1 to use as you need them. With repayment terms that last up to 10 years,1,2 you can fully bring your financial plan to action by consolidating your personal debts into a simple and affordable monthly payment to help you achieve financial peace of mind sooner rather than later.

Our payment estimator can help you see your personalized estimate quickly, and our dedicated concierge service team can serve your needs every step of the way.

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How does a BHG Financial debt consolidation loan affect your credit score?

Before taking out a debt consolidation loan, it’s important to consider how the loan will affect your credit score. Your score will probably dip slightly once the lender performs a hard credit inquiry during the funding process. However, you can gradually improve your score over time—and compensate for the dip—by making all payments on time.

If hurting your credit score is a concern, consider working with a lender like BHG Financial. We’ll only perform a hard credit inquiry for our personal loans during the funding stage of the loan process. Submitting an application will have no impact on your credit score.2

 

How to consolidate credit card debt FAQ

 

Does debt consolidation hurt your credit score?

Your credit score is largely determined by how you manage your debts and balances. Your score could be impacted if you miss a payment on your consolidation loan, continue to run up credit card balances, or close most or all of your remaining cards. If you apply for a debt consolidation loan, the lender will perform a hard credit inquiry during the funding process, which could temporarily impact your score.

 

What credit score do I need to consolidate debt?

While there is no set minimum credit score requirement to get a consolidation loan, lenders generally award the most favorable terms to borrowers with good to excellent credit (scores of 670 and higher). Some lenders may be willing to take on borrowers with credit scores as low as 600.

 

Can I request additional cash to build an emergency fund?

Loans used for debt consolidations are considered personal loans. You can use a personal loan for almost any purpose, and if you choose a lender that offers larger loans, you may be able to access additional money. How much you can borrow from a lender depends on what you are approved for and the range of loan amounts they offer. 

 

Can I consolidate debt if I have bad credit?

Yes, you can consolidate debt with bad credit, though your loan options for consolidation may be limited. Compare offers from lenders, as rates on personal loans for bad credit could exceed credit card APRs.

 

Are there fees associated with debt consolidation loans?

Debt consolidation loans often include origination fees, which typically range from 1% to 8% of the loan amount. Some lenders may also charge late payment fees.

 

How BHG can help you consolidate credit card debt

At BHG Financial, we believe financing should fit seamlessly into your life and goals. That’s why we offer personal debt consolidation loans tailored to your needs, with amounts up to $200,0001 and flexible terms of up to 10 years.1,3 Consolidate your high-interest debt with a BHG loan designed to help you move forward confidently. 
 
Plus, you’ll enjoy dedicated, U.S.-based concierge service that works around your schedule—because your time is valuable. Ready to see what’s possible? Use our quick and easy payment estimator to get your personalized loan estimate in just seconds.

 

 

Not all solutions, loan amounts, rates or terms are available in all states.

 Terms subject to credit approval upon completion of an application. Loan sizes, interest rates, and loan terms vary based on the applicant's credit profile.

There is no impact on your credit for applying. For personal loans, a complete credit history, which will appear as an inquiry on your credit report, will be performed upon acceptance and funding of the loan and may impact your credit.

3 Personal Loan Repayment Example: A $59,755 personal loan with a 7-year term and an APR of 17.2% would require 84 monthly payments of $1,228.

Annual percentage rates (APRs) for BHG Financial personal loans range from 11.96% to 27.87%, with terms from 3 to 10 years. 

No application fees, commitment, or impact on personal credit to estimate your payment.

Consumer loans funded by Pinnacle Bank, a Tennessee bank, or County Bank. Equal Housing Lenders. 

For California Residents: BHG Financial loans made or arranged pursuant to a California Financing Law license - Number 603G493.