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If you fall significantly behind on your credit card payments, your account may get sent to collections. Credit card debt collection is the process where creditors or third-party collection agencies pursue repayment of significantly overdue credit card balances, typically 120 days to 180 days late.

Some credit card issuers have in-house collection departments, but often they will close your account and assign or sell your debt to a third-party collection agency. This agency will then contact you to try to collect on the debt. Here’s a closer look at what happens when credit card debt goes to collections.

What Are Credit Card Collections?

Credit card collections is the process lenders and third-party agencies use to recover unpaid debt.

If you’re familiar with using a credit card, you’ll know that card issuers allow you to make purchases with the promise of eventual repayment. But if you don’t make even the credit card minimum payment for many months in a row, the credit card company may eventually send your debt to collections in an effort to recoup the money you owe.

When Are You at Risk of Credit Card Debt Collection?

While there is no standard timeline, credit card debt typically moves to collections after 120 to 180 days of nonpayment.

However, the warning signs often appear much earlier — most notably when a cardholder can only manage the minimum monthly payment. Because interest rates now average over 20% and typically compound daily, balances can become unmanageable fast. While recent proposals aim to cap credit card interest rates, a steadily climbing balance remains a clear indicator of financial distress.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies you can use to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay down debt.

How Do Credit Card Collections Work?

Credit card debt collection results from not paying your credit card bills. The best way to use credit cards is to always pay the full statement balance by the payment due date. If you’re unable to do that, you’ll want to at least make the credit card minimum payment to keep your account in good standing and avoid late fees.

If you don’t make any payments toward your credit card balance for around four to six months, the credit card company may start the credit card collections process. At this point, a third-party debt collector may assume responsibility for trying to get you to repay what you owe, relying on the contact information the credit card company has on file to get in touch.

Credit Card Debt Collections Process

Credit card companies will typically begin the credit card debt collections process by attempting to contact you directly to pay off the debt. If you haven’t made any credit card payments recently, the bank will likely reach out via email or certified letter. If you still don’t make any payments or arrange for a payment plan within 30 to 90 days, they’ll likely send the debt to collectors.

Many card issuers do not have the staff or business model to engage in a long-term credit card collection process. That’s why they will often hire a third-party company to do the actual debt collection. In many cases, they will simply sell the debt to a collection company for less than it’s worth. Either way, the collection agency will then try to collect on the debt. There are currently over 5,000 third-party debt collection companies in the U.S.

Features of Credit Card Debt Collections

When debt goes to collections, a collector will typically contact you via phone, email, or mail to recover the debt. They must abide by the Fair Debt Collection Practices Act (FDCPA), which prohibits them from contacting you before 8 a.m. or after 9 p.m, contacting you by email or text message if you ask them to stop, or contact you at work if you tell them not to.

In addition, a debt collector must give you “validation information” about the debt either when they first communicate with you or within five days of the first contact. By law, they must provide the following details:

•   The collector’s name and mailing address

•   The name of the original creditor you owe

•   How much money you owe, written out to include interest, fees, payments, and credits

•   Steps to take if you don’t think it’s your debt

If you need help understanding your rights or how to handle credit card debt in collections, you might consider working with a nonprofit credit counseling service.

What Is a Collection Lawsuit?

If debt collectors are not successful in using phone calls, letters, or emails to collect on a debt, the next step is often a lawsuit. A collection lawsuit is a civil legal action filed by a creditor against a debtor to recover unpaid, delinquent, or defaulted debt. A court judgment in their favor can lead to wage garnishment, bank account freezes, or property liens.

However, debt collectors cannot sue you for “old” debt if it has passed the legal time limit, known as the statute of limitations. The statute of limitations on consumer debt can range anywhere from two to 20 years, depending on the state. The timeline may start on the date you made the last payment or the first missed payment — this also varies by state.

Once the statute of limitation expires, the debt is considered “time-barred” and collectors no longer have the legal right to take you to court.

Responding to a Collection Lawsuit: What to Know

It’s important to respond to a collection lawsuit promptly, as ignoring the summons can result in an automatic loss (default judgment). You typically need to respond in writing by a date specified in the court papers, either personally or through your attorney.

You may also need to show up in court, even if you don’t believe you owe the debt. By showing up to court, the debt collector will have to prove that you owe the debt, the amount is correct, and they have the legal right to sue you to collect on the debt. If they can’t, you may have the debt vacated. You may also be able to have the debt discharged if it’s past your state’s statute of limitations.

If you’re unsure how to handle a debt collection lawsuit, you may want to consult a debt relief lawyer.

What Happens If You Don’t Respond to a Collection Lawsuit?

If you don’t respond to a collection lawsuit, it’s possible that the judge will issue a default judgment against you. A default judgment means that the plaintiff (the debt collector) automatically wins, since the defendant (you) did not respond to the lawsuit. In that case, the debt collector now has the legal right to garnish your wages and/or attempt to go after the money in any of your bank accounts.

How a Debt in Collection Affects Your Credit

Once a credit card issuer sends your debt to collections, they will typically close your account and the collection is usually reported as a separate account on your credit report, where it can stay for up to seven years.

A collection account on your credit report is considered a negative entry and can negatively impact your scores, though its impact diminishes over time.

If you pay the debt in collection, the collector may update your account status to “paid” on your credit report. While paid collections can still impact your credit scores, some newer scoring models do not consider paid collection accounts when calculating your score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Guide to Dealing With Credit Card Debt in Collection

If you have credit card debt in collections, it’s important to immediately request a debt validation letter to confirm the debt is yours and accurate. It’s also a good idea to check your state’s statute of limitations for suing on debt, and keep in mind that paying or promising to pay a time-barred debt can reset this clock.

You can check the validity of the debt by looking at your credit reports. If the debt is yours and it’s not time-barred, you might offer to pay a reduced, lump-sum amount in exchange for marking the debt “settled in full.” You’ll want to be sure to get any agreements in writing before making a payment.

Taking Charge of Your Finances

If you’re worrying about credit card debt collections, you may feel like your finances have spun out of your control. Here are some tips to take charge once again:

•   Only spend what you can afford to pay off: One of the best tips for using a credit card responsibly is to avoid making purchases that you won’t be able to pay off each month. This will stop your spending from spiraling into debt.

•   Always try to pay off your credit card in full: While not always easy to do, paying your full statement amount each month allows you to avoid paying interest on your purchases and accumulating debt and can positively impact your credit file.

•   Address any debt head on: If you find yourself in the position of having credit card debt, one of the best things you can do is acknowledge your situation and make a plan to pay off your credit card bill. Start a budget, cut expenses if needed, and use any monthly surplus amount to pay down your debt. It’s also smart to stop spending on your credit card until you’ve reduced or eliminated any outstanding balance.

Recommended: When Are Credit Card Payments Due?

The Takeaway

If you miss making a credit card payment for many months in a row, your card issuer may send you debt to collections. Often, this means that your account will be managed by a third-party agency. This can significantly harm your credit for up to seven years and may even result in a collection lawsuit. Understanding your rights under the FDCPA and proactively addressing debt issues (before they go to collections) can help you regain control of your financial health.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

What happens when credit card debt goes to collections?

When credit card debt goes to collections, the creditor or a third-party collection agency will contact you to try and recover the overdue balance. This may happen after you’ve missed payments for 120 to 180 days. The collector must provide validation information about the debt and abide by the Fair Debt Collection Practices Act (FDCPA). The collection account will appear on your credit report for up to seven years, and can negatively affect your credit scores. If a collector cannot recoup what’s owed, they may file a collection lawsuit, which could result in a court judgment allowing for wage garnishment or bank account levies.

Can a debt collector force me to pay?

A debt collector cannot legally force you to pay a debt. They are permitted to contact you to request payment, and, if the debt is still within the statute of limitations, they can file a lawsuit. If they win the lawsuit and obtain a court judgment, that judgment can legally allow them to garnish your wages or freeze your bank accounts to recover the debt. However, they must always follow the rules of the Fair Debt Collection Practices Act (FDCPA).

How long can credit card debt be collected?

The length of time a credit card debt can be collected depends on your state’s statute of limitations, which dictates how long a creditor has to sue you. This period can range from two to 20 years, typically starting from the date of your last payment or first missed payment. Once the statute of limitations expires, a collector can no longer take legal action against you, though they may still attempt to collect the debt.

Do debt collections affect your credit score?

A debt in collections can negatively affect your credit and remains on your credit report for up to seven years. Since payment history is the most significant factor in credit scoring, a collection account is a serious negative mark. Paying the debt may help, as some modern scoring models disregard paid collection accounts.

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SOCC-Q126-017

A statute of limitations is a state law that limits the period during which a creditor or debt collector can bring action in court to enforce a contract, such as a loan agreement or note. This means a creditor may not be allowed to sue a borrower in court to force them to pay a debt after the period has expired.

However, the statute of limitations on debt isn’t a wait-it-out solution that simply erases debt once it’s been owed for a few years. There may still be consequences to failing to pay back debts once the statute of limitations for debts has expired — and statutes of limitations don’t apply to some debts, including federal student loans. Here’s what you should know about statutes of limitations on debt.

What Is The Statute of Limitations on Debt?

Essentially, a statute of limitations on debt puts a time restriction on how long a creditor or debt collector is able to sue a borrower in state court to enforce the loan agreement and force them to repay the outstanding debts. In practice, this means that if a borrower chooses not to pay a debt, after the statute of limitation runs out, the creditor or debt collector doesn’t have a legal remedy to force them to pay.

To be clear, just because the statute of limitations has expired, it doesn’t mean that the borrower no longer owes the money, even though it does mean that the lender may not be able to take them to court for non-payment. The borrower will continue to owe the money borrowed, and their non-payment could be reported to the credit bureaus. It would then remain on their credit report for as long as allowed under the applicable credit reporting time limit. (For further evidence of how long debt can stick around, you might consider what happens to credit card debt when you die.)

Statutes of limitations don’t apply to all debts. They don’t, for example, apply to federal student loans. Federal student loans that are in default may be collected through wage or tax refund garnishment without a court order.

How Long Until a Debt Expires?

The length of the statute of limitations is determined by state law. State statutes of limitations on debt typically vary from three years to more than 10 years, depending on the type of debt and when the contract was entered into.

Figuring out exactly which state’s laws your debt falls under isn’t always as simple as you might imagine. The applicable statute of limitations may be determined by the state you live in, the state you lived in when you first took on the debt, or even the state where the lender or debt collector is located. The lender may even have included a clause in the contract you signed mandating that the debt is governed by a specific state’s laws.

One commonality in every state’s statutes of limitations on debt is that the “clock” does not start ticking until the borrower’s last activity on the relevant account. Say, for example, that you made a payment on a credit card two years ago and then entered into a payment plan with the debt collector last year but never made any subsequent payments. In that case, the statute of limitations clock would start on the date that you entered into the payment plan.

In this example, simply entering into a payment plan counts as “activity” on the account. This can make it confusing to determine if the statute of limitations has expired on your old debts, especially if you haven’t made a payment in a long time.

It may be possible to find out what the statute of limitations is by contacting the lender or debt collector and asking for verification of the debt. Remember that agreeing to make a payment, entering a payment plan, or otherwise taking any action on the account — including simply acknowledging the debt — may restart the statute of limitations.

After the statute of limitations on the debt has expired, the debt is considered time-barred.

Types of Debt

As mentioned, the length of the statute of limitations on debt can vary depending on the type of debt it is. To know which timeline applies, it helps to understand the different types of debt.

Written Contract

A written contract is an agreement that is signed in writing by both you and the creditor. This contract must include the terms of the loan, such as how much the loan is for and how much monthly payments are.

Oral Contract

An oral contract is bound by verbal agreement — there is no written contract involved. In other words, you said you would pay back the money, but did not sign any paperwork.

Promissory Notes

Promissory notes are written agreements in which you agree to pay back the amount of money by a certain date, in agreed upon installments and at a set interest rate. Examples of promissory notes are student loan agreements and mortgages.

Open-Ended Accounts

Open-ended accounts include credit cards and lines of credit. With an open-ended account, you can repeatedly borrow funds up to the agreed upon credit limit. Upon repayment, you can then borrow money again.

Statute of Limitations on Debt Collection

Each state has its own statute of limitations on debt collection. Here’s a breakdown of the varying timelines by state:

Statutes of limitations on certain old debts may prevent creditors or debt collectors from suing you to recover what you owe. However, it’s important to realize that debt statutes of limitations don’t protect you from creditors or debt collectors continuing to attempt to collect payments on the time-barred debt, such as in the case of credit card default. Remember, you still owe that money, whether or not the debt is time-barred. The statute of limitations merely prevents a lender or debt collector from pursuing legal action against you indefinitely.

Debt collectors may continue to contact you about your debt. But under the Fair Debt Collection Practices Act, debt collectors cannot sue or threaten to sue you for a time-barred debt. (Note that this act applies only to debt collectors and not to the original lenders.)

Some debt collectors, however, may still try to take you to court on a time-barred debt. If you receive notice of a lawsuit about a debt you believe is time-barred, you may wish to consult an attorney about your legal rights and resolution strategies.

Disputing Time-Barred Debt With Debt Collectors

If a debt collector is contacting you to attempt to collect on a debt that you know is time-barred and you don’t intend to pay the debt, you can request that the debt collector stop contacting you.

One option is to write a letter stating that the debt is time-barred and you no longer wish to be contacted about the money owed. If you’re unsure, it may be possible to state that you would like to dispute the debt and want verification that the debt is not time-barred. If the debt is sold to another debt collector, it may be necessary to repeat this process with the new collection agency.

Remember, even though a collector can’t force you to pay the debt once the statute of limitations expires, there may still be consequences for non-payment. For one, your original creditor may continue to contact you through the mail and by phone.

Additionally, most unpaid debts can be listed on your credit report for seven years, which may negatively affect your credit score. That means that failing to pay a debt may impact your ability to buy a car, rent a house, or take out new credit cards, even if that debt is time-barred.

Statute of Limitations on Student Loan Debt

Statutes of limitations don’t apply to federal student loan debt. If you default on your federal student loan, your wages or tax refunds may be garnished.

If you have federal student loan debt, you may consider managing your student loans through consolidating or refinancing. This can help you decrease your loan term or secure a lower interest rate.

Borrowers who hold only federal student loans may be able to consolidate their student loans with the federal government to simplify their payments.

Those with a combination of both private and federal student loans might consider student loan refinancing to get a new interest rate and/or loan term. Depending on an individual’s financial circumstances, refinancing can potentially result in a lower monthly payment (though it may also mean paying more in interest over the life of the loan).

All borrowers with federal loans should keep in mind that refinancing federal loans can mean relinquishing certain federal benefits, like forbearance and income-based repayment options.

Statute of Limitations on Credit Card Debt

The statute of limitations on credit card debts can generally range anywhere from three years to 10 years, depending on the state. However, the laws in the state in which you live aren’t necessarily what dictates your credit card statute of limitations. Many of the top credit card issuers name a specific state whose laws apply in the credit card agreement.

How Long Does the Statute of Limitations on Credit Card Debt Last?

Here’s a look at how long can credit card debt be collected through court proceedings for each state in the U.S.:

Effects of the Statute of Limitations on Your Credit Report

The statute of limitations on credit card debt doesn’t have an impact on what appears on your credit report. Even if the credit card statute of limitations has passed, your debt can still appear on your credit report, underscoring the importance of using a credit card responsibly.

Unpaid debts typically remain on your credit report for seven years, during which time they’ll negatively impact your credit (though its effect can wane over time). So, for instance, if the state laws of Delaware apply to your credit card debt, your statute of limitations would be three years. Your unpaid debt would remain on your credit report for another four years after that period elapsed.

This is why it’s important to consider solutions, such as negotiating credit card debt settlement or credit card debt forgiveness, rather than just waiting for the clock to run out.

How to Know If a Debt Is Time-Barred

To determine if a debt is time-barred — meaning the statute of limitations has passed — the first step is figuring out the last date of activity on the account. This generally means your last payment on the account, though in some cases it can even include a promise to make a payment, such as saying you’d soon work on paying off $10,000 in credit card debt.

You can find out when you made your last payment on the account by pulling your credit report, which you can access at no cost weekly at AnnualCreditReport.com.

Once you have that information in hand, you can take a look at state statutes of limitation laws. Keep in mind that it might not be your state’s laws that apply. If you’re looking for the statute of limitations for credit card debt, for instance, check your credit card’s terms and conditions to see which state’s laws apply.

Figuring out all of the relevant information isn’t always easy. If you’re unsure or have any questions, consider contacting a debt collections lawyer, who should be able to assist with answers to all your credit card debt questions.

What to Do If You Are Sued Over a Time-Barred Debt

Even if you know a debt is time-barred, it’s important to take action if you’re sued over it. You’ll need to verify that the statute of limitations has indeed passed, and you’ll need to come forward with that information. It may be helpful to work with an attorney to help you respond appropriately and avoid any missteps.

If you do end up going to court, it’s critical to show up. The judge will dismiss your case as long as you can prove that the debt is indeed time-barred. However, if you don’t show up, you will lose the case.

How to Verify Whether You Owe the Debt

If you’re not sure whether a debt you’ve been contacted about is yours, you can ask the debt collector for verification. Request the debt collector’s name, the company’s name, address and phone number, and a professional license number. Also ask that the company mail you a debt validation notice, which will include the name of the creditor seeking payment and the amount you owe. This notice must be sent within five days of when the debt collector contacted you.

If, upon receiving the validation notice, you do not recognize the debt is yours, you can send the debt collector a letter of dispute. You must do so within 30 days.

The Takeaway

Statutes of limitations on debt create limits for how long debt collectors are able to sue borrowers in a court of law. These limits vary by state but are often between three to 10 or more years. Once the statute of limitations on a debt has expired, the debt is considered time-barred. However, any action the borrower takes on the account has the potential to restart the statute of limitations clock.

While borrowing money can leave you in a stressful situation where you’re waiting for the clock to run out, it can also help you build your credit profile and access new financial opportunities.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Do I still owe a debt after the statute of limitations has passed?

Yes. The statute of limitations passing simply means that the creditor cannot take legal action to recoup the debt. Your debt will still remain, and it can continue to affect your credit.

Can a debt collector contact me after the statute of limitations has passed?

Yes, a debt collector can still contact you after the statute of limitations on debt passes as there isn’t a statute of limitations on debt collection. However, you do have the right to request that they stop contacting you. You can make this request by sending a cease communications letter.

Additionally, if you believe the contact is in violation of provisions in the Fair Debt Collection Practices Act — such as if they are harassing or threatening you — then you can file a complaint by contacting your local attorney general’s office, the Federal Trade Commission, or the Consumer Financial Protection Bureau.

When does the statute of limitations commence?

The clock starts ticking on the statute of limitations on the last date of activity on the account. This generally means your last payment on the account, but it also could be when you last used the account, entered into a payment agreement, or made a promise to make a payment.

After the statute of limitations has passed, how do I remove debt from my credit report?

Even if the statute of limitations has already passed, debt will remain on your credit report for seven years. At this point, it should automatically drop off your report. If, for some reason, it does not, then you can dispute the information with the credit bureau.

What state’s laws on statute of limitations apply if I incur credit card debt in one state, then move to another state?

If you’re unsure of what the statute of limitations on credit card debt is, the first thing to do is to check your credit card agreement. Which state you live in may not have an impact, as many credit card companies dictate in the credit card agreement which state court will preside.

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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SOCC-Q126-046

Like so many questions related to finances, whether debt consolidation is the right choice for you depends upon your specific situation. Debt consolidation can be achieved by combining multiple credit card balances into a single payment, either through a lower interest personal loan or a balance-transfer credit card that offers a 0% APR (annual percentage rate) for a limited introductory period. We’ll look at both means in this guide.

First some background: Several factors can affect your credit score, and it’s important to understand how credit score algorithms consider them. For example, FICO® Score uses the following breakdown for credit scores:

•   Payment history (35%): This includes delinquent payments and information found in public records.

•   Amount currently owed (30%): This includes money you owe on your accounts as well as how much of your available credit on revolving accounts is currently in use.

•   Credit history length (15%): This includes when you opened your accounts and how long it’s been since you used each account.

•   Credit types used (10%): What is your mix? For example, how much is revolving credit, such as credit cards? How much is installment debt, such as car loans and personal loans?

•   New credit (10%): How much new credit are you pursuing?

The following information can help you make the right debt consolidation decision.

Benefits of Debt Consolidation

The main advantage of debt consolidation is saving money on interest. Credit cards tend to have high rates: 20% to 25%. When you make only the minimum payments on them, you can pay a significant amount of money each month in interest, without seeing your balances drop much at all.

The average interest rate on a personal loan for debt consolidation is 12%. Not only will you save money, but you’ll pay off your debt much faster, typically between 2 and 7 years. If you use a balance-transfer credit card instead of a loan, you’ll need to pay off your balance within the introductory period, before the 0% APR reverts to market rates.

Another benefit is streamlining your bill paying. If you’re using multiple credit cards, it can be easy to accidentally miss a payment. Depending on the severity of the mistake, this can have a negative impact on your credit score, which can make it more challenging to qualify for loans or for low interest rates and other favorable terms. Combining multiple credit cards into one loan or credit card can also help prevent you from accidentally missing a payment.

How you handle your debt consolidation and how you manage your finances after the consolidation play significant roles in whether this strategy will ultimately help you.

Steps to Take Before the Debt Consolidation Loan

People accumulate debt for different reasons. For some, they didn’t have emergency funds available to cover unexpected medical bills or home repairs. For others, being underemployed for a period may have caused them to start carrying a credit card balance. Still others may never have learned how to budget effectively.

No matter why your credit card debt has built up, it may be helpful to think of a debt consolidation strategy as more than just combining your bills. As part of your plan, analyze why your debt accumulated, and be honest about which expenses were under your control and which were true emergencies. If you end up using a lower-cost loan or 0% APR credit card to consolidate your bills, consider using any money you save to build an emergency fund to help prevent the accumulation of credit card balances in the future.

Consolidating your debts, if done in conjunction with a carefully crafted budget and savings plan, can be the first step in your brand-new financial strategy.

When Debt Consolidation Can Help Your Credit Score

Based on the factors FICO considers, here are ways a consolidation loan can help your credit score.

Payment History (35%)

Making payments on time is the biggest factor in FICO credit scores, so a debt consolidation loan can positively impact your credit by reducing the number of bills you have to manage.

Amount Currently Owed (30%)

Although you may not instantly reduce the amount you owe by consolidating all your credit card balances into a personal loan, your credit score can still benefit from it. That’s because the credit score algorithm looks at the credit limits on your cards as well as your outstanding balances, then calculates your credit card utilization. Using a personal loan to pay off your cards is one way to lower your utilization.

Here is more information about credit card utilization, including how to calculate and manage yours.

Credit Types Used (10%)

There are several different types of credit, including credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. According to FICO, responsibly using a diverse mix of these, such as credit cards and installment loans, may help your credit score.

However, it’s certainly not necessary to have every type of credit, and it’s not a good idea to open credit accounts you don’t intend to use.

When Debt Consolidation Can Hurt Your Credit Score

Now here are ways that consolidating debt through a loan or balance-transfer card may hurt your credit score.

Payment History (35%)

As with most loans, making late payments can hurt your credit score. Loans in a delinquent status will have a negative impact on your credit to various degrees, depending on the lenders’ policies.

Amount Currently Owed (30%)

What if you pay off all your credit cards with a personal loan but then begin using them again to the extent that you can’t pay them off monthly? Any gain that you saw in your credit score will disappear as your credit utilization numbers rise again.

Another way that credit consolidation can harm your score is if you combine all your credit card balances on just one credit card and close the other accounts, resulting in a high utilization rate. However, if you can keep the usage rate relatively low, that’s less likely to negatively affect your score.

Credit History Length (15%)

Closing credit card accounts after paying them off can have another negative effect: You may reduce the overall age of your accounts, which can hurt your credit score.

Credit Types Used (10%)

If you combine all your credit card balances into just one credit card, instead of taking out a personal loan, that won’t help with diversifying your credit types.

New Credit (10%)

If you apply for a personal loan or a balance-transfer credit card but are rejected, this can cause your credit score to decrease. Applying for multiple loans or credit cards over an extended period of time, while looking for a lender who will accept your application, can also hurt your score. However, multiple requests for your credit report information (known as “inquiries”) in a brief period of time typically won’t decrease your score.

Concerned about building or rebuilding credit? Check out a few tips SoFi put together on how to strategically build your credit score.

Recommended: How to Get a Debt Consolidation Loan with Bad Credit

Investigating a Personal Loan for Debt Consolidation

If you are considering applying for a personal loan, it’s important to get the lowest rate you can. But you shouldn’t focus on interest rates exclusively. When choosing a lender, ask about the fees associated with the loan. Some lenders have hidden fees, but others — like SoFi — do not. A lender’s APR includes both the interest rate and any required fees. Compare the APRs of multiple loan offers to understand the actual cost of financing.

You should also calculate the shortest loan term that your budget can comfortably accommodate. The sooner you pay off the debt, the more money you’ll save because you’ll pay less interest.

You can find more information about saving money through debt consolidation, and you can also calculate payments using our personal loan calculator.

Recommended: Will a Personal Loan Build Credit?

The Takeaway

If you’re ready to say goodbye to juggling multiple payments each month, debt consolidation may be a good option. You can consolidate credit card debt through different means — typically either a lower-interest personal loan or a 0% APR balance-transfer credit card. With the latter, you’ll need to pay off your debt before the introductory 0% APR expires (usually 6 to 21 months). With a personal loan, you can repay the principal over up to 7 years.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

What are the short-term benefits of debt consolidation loans?

A debt consolidation loan can help you manage your debt because you have only one monthly payment to keep up with. It can also save you money, as interest rates for loans are usually lower than those for credit cards.

What are the potential risks of debt consolidation for credit scores?

When you have only one monthly payment, making that payment late has a greater negative impact on your credit score than being late on one of several payments. Additionally, if you consolidate your debts into a single credit card instead of a loan, this can increase your credit utilization rate and lower your credit diversification, both of which can lower your credit score. Closing credit card accounts after paying them off is another risk, as this may reduce the overall age of your accounts.

How can responsible debt management build credit scores after consolidation?

Consolidating your debts gives you the opportunity to evaluate your financial situation and implement a better strategy for how you use credit. If you can limit your credit purchases to those that are essential, you are more likely to be able to pay down your debts in a timely fashion and avoid unnecessary interest.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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If you’re repaying a variety of debts to different lenders, keeping track of them all and making payments on time each month can be time-consuming. And it isn’t just tough to keep track of — it’s also difficult to know which debts to prioritize to fast-track your debt repayment. After all, each of your cards or loans likely has a different interest rate, minimum payment, payment due date, and terms.

Consolidating, or combining, your debts into a single new loan or credit line could give your brain and your budget some breathing room. We’ll take a look at what it means to consolidate debt and how it works.

What Is Debt Consolidation?

Debt consolidation involves taking out one loan or line of credit — ideally with a lower interest rate — and using it to pay down other debts, whether that means car loans, credit cards, or another type of debt. After combining those existing loans into one, you have just one monthly payment and one interest rate.

💡 Quick Tip: Credit card interest rates average 20%-25%, compared to 12% for a personal loan. And with loan repayment terms of two to seven years, a loan could let you pay down your debt faster. With a SoFi personal loan to consolidate credit card debt, who needs credit card rate caps?

Common Ways to Consolidate Debt

Your options to consolidate debt depend on your overall financial situation and which types of debts you want to consolidate. Here are some common approaches.

Balance Transfer

If you’re able to qualify for a credit card that has a lower annual percentage rate (APR) than your current cards, a balance transfer credit card can be a smart financial strategy to consolidate debt as long as you use it responsibly.

Some credit cards have zero- or low-interest promotional rates specifically for balance transfers. Promotional rates typically apply for a limited time only, but if you pay off the transferred balance in full before that period ends, you’ll reap the benefit of paying less — or even zero — interest.

However, there are caveats to keep in mind. Credit card issuers generally charge a balance transfer fee, often 2% to 5% of the amount transferred. And if you use the credit card for new purchases, in many cases the card’s purchase APR, not the promotional rate, will apply to those purchases.

At the end of the promotional period, the card’s APR will revert to its regular rate. If a balance remains at that time, it’ll be subject to the new, regular rate. Making late payments or missing payments entirely will typically trigger a penalty rate, which will apply to both the balance transfer amount and regular purchases made with the credit card.

Home Equity Loan

If you own a home and have equity in it, you might consider a home equity loan for consolidating debt. Home equity is the home’s current market value minus the amount remaining on your mortgage. For example, if your home is worth $300,000 and you owe $125,000 on the mortgage, you have $175,000 worth of equity in your home.

Another key term lenders use in home equity loan determinations is loan-to-value (LTV) ratio. Typically expressed as a percentage, the LTV represents the other side of the scale to equity: Instead of how much you own, it’s how much you owe. That percentage is calculated by dividing the home’s appraised value by your remaining mortgage balance.

Lenders typically like to see applicants whose LTV is no higher than 80%. In the above example, the LTV would be 42%.

If you qualify for a home equity loan, you’ll typically be able to tap into up to 85% of your equity. After the home equity loan closes, you’ll receive the loan proceeds in one lump sum, which you can use to pay down your other debts.

A home equity loan is considered a second mortgage, a secured loan using your home as collateral. Since there’s a risk of losing your home if you default on the loan, this option should be considered carefully.

Personal Loan

If you don’t have home equity to tap into, or you prefer not to put your home up as collateral, a personal loan is another option to consider.

There are many types of personal loans, but most are unsecured loans, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but the vast majority have fixed rates.

Generally, personal loans offer lower interest rates than credit cards, so consolidating credit card debt into a fixed-rate personal loan may result in savings over the life of the loan. Also, since personal loans are installment loans, there’s a payment end date, unlike the revolving nature of credit cards.

There are many personal loan lenders, and the application process tends to be fairly simple. A loan comparison site can help you see what types of interest rates and loan terms you may be able to qualify for.

When you apply for a personal loan, the lender will do a hard inquiry into your credit report, which may temporarily lower your credit score by a few points. If you’re approved, the lender will send you the loan proceeds in one lump sum, which you can use to pay down your other debts. You’ll then be responsible for paying the monthly personal loan payment.

One drawback to using a personal loan for debt consolidation is that some lenders charge an origination fee, which reduces the amount you receive without affecting the amount you’ll have to repay. There may also be other fees, such as late fees or prepayment penalties. It’s important to make sure you’re aware of any fees and penalties before signing the loan agreement.

💡 Quick Tip: Swap high-interest debt for a lower-interest loan and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

Is Debt Consolidation Right for You?

Your financial situation is unique to you, but there are several things you’ll want to keep in mind when trying to decide if debt consolidation is right for you.

Debt Consolidation Might Be a Good Idea if…

•   You want to have only one monthly debt payment. It can be a challenge to manage multiple lenders, interest rates, and due dates.

•   You want to have a payment end date. A home equity loan or a personal loan could be useful for this reason because both are forms of installment debt.

•   You can qualify for a low- or zero-interest credit card. This could allow you to consolidate multiple debts on one new credit card and save on interest by paying down the balance before the promotional rate ends.

Debt Consolidation Might Not Be for You if…

•   You think you’ll be tempted to continue using the credit cards you paid down in the debt consolidation process. This can leave you further in debt.

•   You’ll incur fees (e.g., balance transfer fees or origination fees). If those fees are high, it might not make sense financially to consolidate the debts.

•   Consolidating your debts may actually cost you more in the long run. If your goal is to have smaller monthly payments, that generally means you’ll be making payments for a longer period and incurring more interest over the life of the loan.

Recommended: Getting Out of Debt With No Money Saved

Credit Card Debt Relief: How to Get It

Some people seek assistance with getting relief from debt burdens. Reputable credit counselors do exist, but there are also many programs that scam people who may already be overwhelmed and vulnerable.

Disreputable debt settlement companies may charge substantial fees upfront and often make bogus claims, such as guaranteeing that they’ll be able to make your debt go away or saying that there’s a government program to bail out those in credit card debt.

Even if a debt settlement company can eventually settle your debt, there may be negative consequences for your credit. A debt settlement program may require that you stop making payments to your creditors. But your debts may continue to accrue interest and fees, putting you further in debt. The lack of payments may also take a negative toll on your payment history, which is an important factor in the calculation of your credit score.

Recommended: Debt Settlement vs Credit Counseling: What’s the Difference?

Debt Relief: Is It a Good Idea?

What’s a good idea for some people may be a bad idea for others. Whether debt relief is a good idea for you and your financial situation will depend on factors that are unique to you. Working with a reputable credit counselor may be a good way to get assistance that will help you pay down your debt and create a solid financial plan for the future.

The Takeaway

Debt consolidation allows borrowers to combine a variety of debts, such as credit card debt, into a new loan. Ideally, this new loan will have a lower interest rate or more favorable terms to help streamline the repayment process.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

What is debt consolidation?

Debt consolidation is the process of combining multiple debts into a single loan or line of credit. This may help you simplify your financial situation. Ideally, the new loan or line of credit should have a lower interest rate than those you’re paying on your existing debts, so you also save money on interest.

What options exist for consolidating debt?

Common options for debt consolidation include balance transfers to a credit card with a low or zero interest rate (sometimes offered specifically for balance transfers), home equity loans, and personal loans. The most practical choice will depend on your financial situation, including what kinds of debts you have and how much equity you hold in your home.

What are the pros and cons of debt consolidation?

Consolidating multiple debts into one line of credit or loan may help you keep your finances organized and could save you money through a lower interest rate, as well as offering an end date for your debt payoff. However, fees may cancel out the potential savings, and spreading payments over a longer period could lead to your paying more interest overall.

Who qualifies for debt consolidation?

Whether you qualify for debt consolidation depends on how you plan to consolidate your debts. To secure a home equity loan, for example, you’ll probably need to have at least 20% equity in your home. To apply for a personal loan, you won’t need that collateral, but the lender will check your credit score.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Spending is on the rise — and so is consumer debt. Americans carry, on average, four active credit cards and have $6,523 in credit card debt, In Q2 2025 alone, U.S. credit card debt rose by $24 billion over the previous quarter, according to the Federal Reserve Bank of New York.

Credit card debt can be a challenge to pay off along with regular monthly household expenses. Some people may choose to refinance their high-interest credit card debt in order to secure a lower interest rate or a lower monthly payment. Refinancing credit card debt can be one way to make progress toward paying it off.

What Is Credit Card Debt?

If you’re putting more purchases on credit cards than you can pay off in a monthly billing cycle, you have credit card debt.

Interest accrues on the balance that carries over to the next billing cycle. If you don’t pay at least the minimum amount due, you’ll likely also be charged a late fee. Since credit cards use compound interest, you’ll be charged interest on accrued interest and fees. That can add up quickly and make it more difficult to get out of debt.

Carrying a balance on more than one credit card can make the debt even more challenging to manage. If your goal is to pay off credit card debt sooner, refinancing can be one way to achieve that.

Recommended: What Is the Difference Between Personal Loan vs Credit Card Debt?

What Are Some Benefits of Refinancing Credit Card Debt?

Credit card debt is revolving and typically has a variable APR.

Refinancing credit card debt with an installment loan that has a fixed interest rate, such as a personal loan, means you’ll have a fixed end date to your debt and the same APR for the entire term of the loan.

If you’re refinancing multiple credit card balances into one new loan or line of credit, you’ll have fewer bills to pay each month. That could potentially make monthly budgeting a simpler task.

Recommended: What Is a Good APR for a Credit Card?

How Might Debt Refinancing Affect Your Credit Score?

Something to keep in mind when your goal is to pay off debt is that it’s a long game.

That being said, in the short term, your credit score can decrease slightly when you apply for new credit and the lender looks at your credit report. During the formal application process, the lender will perform a hard inquiry into your credit report, which may result in a slight temporary drop in your credit score.

If you’re comparing multiple lenders, and they offer prequalification, they’ll do a soft inquiry into your credit report, which won’t affect your credit score.

Building your credit — or rebuilding it — through refinancing credit card debt is possible if you make on-time, regular payments on the new loan. Reducing your credit utilization can be another positive result of refinancing credit card debt. Both of these approaches can potentially increase your credit score.

It’s important not to overuse the credit cards you’ve refinanced into a new loan, however, or you might accumulate even more debt than you started with.

Will Canceling My Unused Credit Cards Affect My Credit Score?

After you’ve refinanced your existing credit card debt into a new loan, you might be tempted to cancel those credit cards. But that strategy could negatively affect your credit score.

Whether it’s a good idea to cancel a credit card really depends on the card. If you’ve had a credit card for a long time, closing it would shorten your credit history, which could result in a credit score drop. But if it’s a card you genuinely don’t have a reason to keep, such as a retail card for a store you no longer shop at or a card that has a high annual fee that can’t be justified with your current spending habits, closing the account might be the right step for you.

If you plan to keep a credit card open, it may be a good idea to use it for a small, recurring charge so the card issuer doesn’t close it for inactivity. Setting up autopay can be a convenient way to ensure the card stays open but is paid in full each month.

What Are Some Options for Refinancing Credit Card Debt?

Your overall creditworthiness is a determining factor when finding available refinancing options. Lenders will look at your credit report and credit score, paying attention to how you’ve handled credit in the past and how much total debt you have in relation to your income.

Balance Transfer Credit Card

If you qualify for a low- or no-interest credit card, you could use it to transfer a balance from another credit card. You’ll typically be charged a balance transfer fee equal to a percentage of the balance you’re transferring. The promotional rate on these types of cards is temporary, ranging from as short as six months to 21 months.

If you pay the transferred balance in full within the promotional period, you may not have to pay any interest, or you may only have to pay a minimal amount. However, if you still have an outstanding balance on the card when the promotional period is over, the APR will revert to the card’s standard rate for balance transfers.

Home Equity Loan

A potential source of refinancing funds might be your home if you have equity in it. Funds from a home equity loan can be used for just about anything, even things unrelated to your home. You can calculate how much equity you have in your home by subtracting the amount you owe on your mortgage from the current market value of your home.

In addition to the amount of equity you have in your home, lenders will often look at your income and credit history to determine how much you might qualify for. It’s common for lenders to limit a home equity loan to no more than 85% of the equity you have in your home. There are typically closing costs with a home equity loan, including appraisal, title search, origination, and other fees, which can cost between 2% and 5% of the loan amount.

A home equity loan is a second mortgage secured by your home. If you fail to repay the loan, the lender can foreclose your home.

Debt Consolidation Loan

Some lenders offer loans specifically for debt consolidation. These are actually personal loans, the funds from which can be used to pay off your existing credit card debt. Then, you’ll be responsible for repaying the debt consolidation loan. There may be fees charged on this type of loan, so be sure to look over the loan agreement carefully before signing it.

For a credit card consolidation loan to be as effective as possible at reducing your debt, it will ideally have a lower APR than you’re paying on your credit cards. In this way, you would be paying less in interest over the life of the loan. If a lower monthly payment is your goal, you may opt for a longer-term loan but may have to pay a higher interest rate.

Recommended: How to Get a Debt Consolidation Loan With Bad Credit

The Takeaway

If your credit card debt is piling up and you’re finding it challenging to pay down, you may be considering refinancing. Some credit card refinancing options include balance transfer credit cards with a promotional APR, home equity loan, or debt consolidation loan.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

What is credit card refinancing?

Credit card refinancing is a strategy in which you work toward paying off your existing credit card balance or debt with a loan or a new line of credit that has a lower rate. Refinancing options include a personal loan, balance transfer credit card, home equity loan, and debt consolidation loan.

Does credit card refinancing hurt your credit score?

Your credit score may go down at first, as the lender will perform a hard inquiry into your credit report, but the decrease is generally temporary. While refinancing, you can rebuild your credit score by paying off your new loan or credit card on time and by lowering your credit utilization.

What are the pros and cons of refinancing credit card debt?

Refinancing can help you pay off your credit card debt sooner, consolidate your credit card debt, reduce your credit utilization, or pay less in monthly interest. However, it may lower your credit score in the short term, and depending on your credit history, some refinancing options may not be available to you or may involve additional fees. For example, using a home equity loan to refinance typically includes closing costs, such as appraisal, title search, and origination fees.

What is the difference between credit card refinancing and debt consolidation?

Credit card refinancing and debt consolidation are both strategies that can help you manage your credit card debt. Credit card refinancing focuses on negotiating for better terms and interest and rebuilding a positive credit history. Debt consolidation is a type of personal loan whose funds can be used to pay off debt, including credit card debt.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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