What is the Best Choice for Paying Off Your Credit Card Debt?

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How to Consolidate Credit Card Debt the Safe and Smart Way

So many American households deal regularly with five-figure credit card debt that we seem to accept it as a fact of life. Baseball, apple pie, and credit card debt! As you already know if you find yourself among this group, credit card debt is nothing to feel nostalgic about. But whom do you turn to for help?

Family and friends are not in a position to pay off your debt, even if you could get over the stigma of asking for help. Churches and community services are often stretched to the limit. And the government (i.e., your fellow taxpayers) has little interest in helping to pay down or pay off your debts.

What’s the difference between a legitimate debt consolidation offer and one that will just make things worse?

Legitimate debt consolidation opportunities lead to lower debt balances each month, don’t hurt your credit rating, are available regardless of the amount of debt you have, and have reasonable and regulated fees.

You’ll often find that a legitimate means of consolidating your credit card debt will be either with a nonprofit organization or through a credible banking institution.

Most lists of debt consolidation options include debt consolidation loans, credit counseling services, debt negotiations, and credit card balance transfer offers. But which of these, if any, match the criteria listed above?

It pays to remain vigilant when receiving a consolidation offer that seems too good to be true. More often than not, those offers can lead to numerous problems, many of which we’ll describe below. While it’s true that not all brand-named offers are the best choice, the fact is, if you’ve never heard of the organization and you haven’t solicited their help, be sure to do your homework before contacting them to consolidate your debt.

Where to Get Help with Credit Card Debt

As we take a look at each of these common options to paying off credit card debt, we’ll consider them in light of the criteria noted above. Additionally, we’ll rate each option on a scale of 1 to 5 stars, with 5 being the best.

Credit Card Balance Transfer Offers

They seem to be everywhere, in every mailbox on every mail day. Credit card balance transfer offers. If you have a decent credit rating and carry a balance on one or more credit cards, you will likely receive these offers in your mailbox.

Credit card companies buy mailing lists from the consumer reporting agencies (aka credit bureaus) with very specific demographics: such and such a credit score, so much debt, and this many credit card accounts with balances. With such a specific understanding of their potential client base, the credit card companies know that they’ll get a fairly reasonable return of account applications.

By the way, if you’d like to opt-out of these offers, simply go to OptOutPrescreen.com and fill out the form. It takes just a couple of minutes and lasts for up to five years.

Consistent Debt Reduction ⭐⭐⭐

When approved, your new credit card company will pay off your other credit card debt, leaving you with a single credit card account instead of multiple accounts. However, there’s an inherent danger to the consumer. With so many paid-off credit cards, it can be tempting to start using them again.

Previous studies had shown that nearly 70% of consumers who used a credit card balance transfer to pay off other credit cards did exactly this. They consolidated their debts onto a single card and then started using their old credit cards again until they were back to their original balances within two years, effectively doubling their total debt balances.

Fortunately, consumer behavior changes with the times. Because of the Great Recession and the economic downturn related to the COVID-19 pandemic, credit cardholders have seemingly begun taking a wiser approach to credit card balance transfers. Based on a relatively small survey by Experian (202 respondents), about 50% of all consumers using a credit card balance transfer will pay off their credit card balances within 18 months, usually taking advantage of a promotional 0% APR during that timeframe.

Effect on Credit Rating ⭐⭐⭐

Applying for a new credit card can have a small, negative impact on the consumer’s credit rating. Conversely, paying down the balance can have a very positive effect on the rating. Giving in to the temptation to run the paid-off credit card balances back up to their original dollar amounts would have a very negative effect on the consumer’s credit score.

Minimum Debt Requirements ⭐⭐⭐⭐⭐

Most credit card balance transfers offer to carry no minimum debt amount to qualify for the offer. Many will have a maximum amount though, even if they don’t specify it in the offer.

Fees ⭐⭐⭐

Many consumers take advantage of 0% APR promotional offers to transfer credit card balances to a new card. If paid off before the promotional APR expires, the consumer will pay no fees or interest whatsoever. Otherwise, the consumer will be subject to paying fairly high credit card interest rates, currently averaging over 16% APR. That interest rate means that for every $1,000 balance you carry, you’ll pay $160 a year in interest.

Total Score ⭐⭐⭐⭐

Debt Consolidation Loans

Debt consolidation loans are personal loans that are used to pay off other debts. Debt consolidation loans can be difficult to qualify for since you are essentially asking the new lender to take on all the risk that has been previously spread out among several credit card companies. They look and act a lot like credit card balance transfers except that you typically can’t continue to use the loan to make additional payments in the future.

Consistent Debt Reduction ⭐⭐

Similar to using credit card balance transfers to pay off credit card debts, there’s nothing keeping the consumer from running their paid-off credit cards back up to their original balances. If the consumer exercises a great deal of self-discipline and can qualify for a debt consolidation loan, they can see significant debt reduction within a matter of six to twelve months. Otherwise, they may subject themselves to the devastation of doubling their debt by running their old card balances back up.

Effect on Credit Rating ⭐⭐⭐

Applying for a debt consolidation loan will likely have a small, negative effect on the borrower’s credit rating. Still, transferring the balance to a new account and paying down the balance can positively affect the consumer’s utilization rate, leading to a better credit score. However, if the borrower runs their old credit card balances back up, their credit score will likely suffer.

Minimum Debt Requirements ⭐⭐

Most banks and credit unions don’t want to waste their time working on small loans. There’s no money to be made on loans of just a few thousand dollars. Some states even set minimum loan amounts.

Fees ⭐⭐⭐

Besides the expected and hopefully reasonable interest rate, most debt consolidation loans come with origination fees that can range from 0% up to 10% of the amount loaned.

Total Score ⭐⭐⭐

Nonprofit Credit Counseling Services

Credit counseling agencies have existed almost from the moment the credit card was invented. As long as there have been credit cards, there has been a need for a trusted third party to help people get out of credit card debt.

Consistent Debt Reduction ⭐⭐⭐⭐⭐

Credit card accounts placed on a credit counseling agency’s debt management program will close to further use. Additionally, the agency negotiates lower interest rates with the credit card company, often in the 2% to 6% range. This means that the majority of every monthly payment goes to lowering the consumer’s debt balance and that there’s no chance of the consumer using those cards to continue building or growing their debt. That’s real credit card debt relief.

Effect on Credit Rating ⭐⭐⭐⭐

The main credit score modeling company, FICO, has clearly stated that participation in any sort of credit counseling is not a factor in the consumer’s credit rating. That said, because the participating creditors close the credit cards to any potential future use by the consumer, this may have an initial negative effect on the consumer’s credit rating. However, the consumer’s credit cards were already maxed out, there may be no effect whatsoever. Regardless, the subsequent balance reduction will do nothing but improve the consumer’s credit rating.

Minimum Debt Requirements ⭐⭐⭐⭐⭐

Credit counseling agencies have no minimum debt balance they require of their clients. While it may not make sense to use a debt management program if you have just a few hundred dollars of credit card debt, it’s nice to know you have the option. After all, even a few hundred dollars can feel painful at high-interest rates.

Fees ⭐⭐⭐⭐

Credit counseling agencies are regulated by various federal and state agencies. In fact, each state regulator can set a different maximum fee that credit counseling agencies can charge. These fees never reach unreasonable levels and will vary depending upon the amount of debt or the number of accounts you include. All are capped and clearly stated during the counseling session.

Total Score ⭐⭐⭐⭐⭐

Debt Settlement

Also known as debt negotiators, this service asks their clients to stop making payments to their creditors and to pay them instead. After a year or two, if the consumer has not been taken to court by the creditors already, the negotiator will then attempt to force the creditor to accept 50% of the balance owed instead of 100%.

Consistent Debt Reduction ⭐⭐⭐

When successful, which happens very infrequently, the consumer actually experiences a dramatic decrease in the debt they owe. However, this tends to be the exception rather than the norm.

Effect on Credit Rating

Besides a bankruptcy, the resulting charge off from debt negotiations will typically hurt your credit score more than any other event. Additionally, it will continue to negatively affect your credit score for the next seven years.

Minimum Debt Requirements

Most debt negotiators require their clients to have a minimum of $10,000 before they will even consider working together. That means that if you have $9,000 of credit card debt, debt settlement services are not even an option.


While fees range from agency to agency, most will charge a setup fee and a monthly fee for managing your accounts. Generally, you can expect to pay at least 25% of the charged-off amount. That means that if you have $10,000 of credit card debt settled for $5,000, you will have to pay the debt negotiator at least $1,250.

Additionally, the IRS will also want to get involved, considering such settled amounts as taxable income. If you find yourself in the 20% tax bracket, you’ll pay an additional $1,000 in federal income tax. That means you’ll end up paying at least $7,250 to settle a $10,000 debt. Hardly the 50% they advertise.

Total Score ⭐⭐

Each debt consolidation method has its own advantages and disadvantages. That said, some have disadvantages that far outweigh their advantages. Others are not available to the majority of consumers who would benefit from them. When considering your options, be sure to understand how likely you are to qualify and how each method will affect your debt and your credit.

Rating Scale

1-20 percent: One Star ⭐

21-40 percent: Two Star ⭐⭐

41-60 percent: Three Star ⭐⭐⭐

61-80 percent: Four Star ⭐⭐⭐⭐

81-100 percent: Five Star ⭐⭐⭐⭐⭐