How to Consolidate Credit Card Debt

If you have debt on several credit cards, you probably feel like you're treading water in the ocean. For one thing, you're stressed about making multiple payments on time. You might also be stressed about having enough money to even make the payments given the coronavirus crisis.

One option to get things under control -- and save money -- is to consolidate your credit card debt. With consolidation, you'd be making one payment a month instead of four or five. And hopefully, you'll even get a much lower interest rate, which will save you money.

If that sounds like a relief, then read on to learn about five ways you can consolidate credit card debt:

-- Use a balance transfer credit card.

-- Get a debt consolidation loan.

-- Check out peer-to-peer lending.

-- Work with a credit counseling agency.

-- Use a home equity loan or a line of credit.

Use a Balance Transfer Credit Card

If your finances are still in good shape, a balance transfer credit card might work for you. You're going to need a good to excellent FICO score to qualify for the best balance transfer cards. Right now, the top balance transfer credit cards are offering 0% annual percentage rates with introductory periods from 12 to 21 months. If you do qualify, this is a golden opportunity to pay off your debt without paying interest.

As long as your credit limit is high enough to cover the total amount you want to transfer, you're in business.

But you need to follow two ground rules to stay out of trouble. First, you must determine your monthly payment so you'll pay off your debt before the intro period ends. If your new card has a balance transfer fee, which can be up to 5%, you must include that fee in the total amount you need to pay back.

Here's an example: Let's say you're transferring a total of $10,000 onto a card with an 18-month intro period and a 3% transfer fee. You'll need to pay $572.22 every month to pay it off before the intro period ends ($10,300/18 = $572.22).

When the intro period ends, you'll start paying interest at the "go-to rate" on your balance. If you can't pay the debt off before the 0% APR ends, then determine how much you can pay per month to decrease your debt.

The second rule is that you can't use your balance transfer card for new purchases. Sometimes, your new balance transfer card will offer a 0% intro rate on purchases as well. Don't get seduced by that offer. You can use this card for new purchases when you're debt-free and the COVID-19 crisis is behind us.

Get a Debt Consolidation Loan

If you don't qualify for one of the top balance transfer credit cards, then consider consolidating your debt with a personal loan. According to the Federal Reserve, nonrevolving debt, which includes personal loans, increased at a 7% annual rate in February 2020.

Though many people are trying to get by on reduced incomes, if you're in a position where you can start chipping away at your debt, consolidating multiple credit card balances into one installment payment per month can save you time and money.

[Read: Best Low-Interest Credit Cards.]

You won't get a 0% APR like you would with a balance transfer card, but you'll likely get a better rate than what you currently have on your credit cards. And best of all, you'll get a fixed rate.

No matter where you apply, it helps to have a good credit score for the best rates, but lenders look at other factors, too. For instance, a lender looks at your credit report, debt-to-income ratio, employment history and income.

But even if you have a low credit score, go ahead and do the research to see if you can find lower rates than what you currently have on your credit cards.

Check Out Peer-to-Peer Lending

Another option for a personal loan is peer-to-peer lending. P2P loans aren't from traditional lenders, such as a bank. Each platform is a little different, but P2P websites basically match borrowers with people who want to invest their money by giving you a loan.

The good news? If your loan gets approved, the rates can be quite low. The bad news? It can be challenging to get approved. If you get approved with a fair credit score, your interest rate could be high.

Keep in mind that P2P websites operate differently and have various requirements for credit scores and other factors. Be sure you read the FAQ section so you understand how each company handles loans and what the terms are.

Work With a Credit Counseling Agency

What if you're in so much debt at this point during the coronavirus pandemic, you aren't able to make an installment payment each month? You're not alone. So many Americans are looking for a financial lifeline right now.

Even if you check out debt consolidation options and don't get approved, you still aren't trapped. Don't hesitate to reach out to the National Foundation for Credit Counseling. You can talk to a counselor for free and discuss options to help you get out of debt.

Get a Home Equity Loan or a Line of Credit

If you have debt on high-interest credit cards, it's possible to get a home equity loan and use the amount to pay off your credit card debt. The interest rates for those with good credit can be quite low.

With a home equity loan, you get a fixed amount of money and the loan is secured by your home. You'll have a monthly payment over a set term. The downside? If you can't make the payments, you could lose your home.

A home equity line of credit is different from a loan. A HELOC is similar to a revolving line of credit. You borrow as much as you need (within your credit limit) and make payments on the amount you borrow. The downside? If you can't make the payments, you could lose your home.

I don't recommend this option unless your job situation is very stable and you have a healthy emergency fund. Seriously, for most Americans, this isn't the time to risk losing your home.

[Read: Best Personal Loans.]

Consolidating Credit Card Debt During the COVID-19 Pandemic

According to the 2019 Consumer Financial Literacy Survey conducted on behalf of the NFCC, nearly 40% of U.S. adults carry credit card debt from month to month. That was before the coronavirus crisis hit us.

Consolidating your credit card debt might help you stay afloat right now. If all goes well with your household income, you might even succeed in getting out of debt before all this is over. Whichever option you choose, make sure you don't add to your debt. Remember that the credit card or the loan you got is for getting out of debt. Don't add to your debt with purchases you don't need for survival right now.

But if after researching your credit card debt consolidation possibilities you feel hopeless, you still have options. Contact your credit card issuers and ask for help. Federal law can help you protect your credit right now, but make the call before you miss payments.

And don't forget that the National Foundation for Credit Counseling can also help you. If you've already missed payments and your credit card issuer can't do much to help you, contact the NFCC today. It takes courage to ask for help, so don't consider it a weakness. We're going to get through this, but for now, just do what it takes to protect your finances until this crisis starts to pass.