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You may have heard that consolidating your debts can hurt your credit score. So, if you’re considering this financial strategy to free up cash flow and otherwise streamline debts, it’s natural to wonder if that’s true. And like so many questions related to finances, the answer depends upon your specific situation.

It’s important to remember that a combination of many factors can affect credit scores and to understand how those factors are considered in credit score algorithms. We’ll use FICO® as an example—according to them, the high-level breakdown of credit scores is as follows:

•  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 used up.

•  Credit history length (15%): This includes when you opened your accounts and the amount of time since you used each account.

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

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

Now, here is information to help you make the right debt consolidation decision.

Benefits of Debt Consolidation

When you’re juggling, say, multiple credit cards, it can be easy to accidentally miss a payment. Depending on the severity of the mistake, that can have a negative impact on your credit score. This, in turn, can make it more challenging to get loans when you need them, or prevent you from getting favorable loan terms, like low interest rates. Plus, even if you don’t miss a payment, when you have numerous credit card bills to juggle, you probably worry that one will get missed.

Plus, it’s not uncommon for credit cards to have high interest rates, and when you only make the minimum payments on each of them, you very well may be paying a significant amount of money each month without seeing balances drop very much at all.

So, when you combine multiple credit cards into one loan, preferably one with a lower interest rate, it’s much more convenient, making it less likely that you’ll accidentally miss a payment. And paying less in interest will likely make it easier to pay down your debt.

How you handle your debt consolidation, though, and the way in which you manage your finances after the consolidation each play significant roles in whether this strategy will ultimately help you.

Steps to Take: Before the Debt Consolidation Loan

Debt accumulates for different reasons for different people. For some, unexpected medical bills or emergency home repairs have served as culprits. For others, being underemployed for a period of time may have caused them to start carrying a credit card debt balance. For still others, it may be about learning how to budget more effectively.

No matter why credit card debt has built up, it can help to re-envision a debt consolidation strategy as something bigger and better than just combining your bills. As part of your plan, analyze why your debt accumulated and be honest about which ones were under your control and which were true emergencies.

And if you end up using a lower-cost loan to consolidate your bills, consider using any money saved to build up an emergency savings fund to help prevent the accumulation of credit card balances in the future.

The reality is that, if you consolidate your debts in conjunction with a carefully crafted budgeting and savings plan, then debt consolidation can be a wonderful first step in your brand-new financial strategy.

Debt Consolidation: When It Can Help Your Credit Score

Based on the factors used by FICO, here are ways in which a consolidation loan can help credit scores:

Payment history (35%)

Because making payments on time is the largest factor in FICO credit scores, a debt consolidation loan can help your credit if you make all of your payments on time.

Amount currently owed (30%)

Although you may not instantly reduce the amount you owe by, say, consolidating all of your credit card balances into a personal loan, there can be a benefit to your credit score here. That’s because the credit score algorithm looks at credit limits on your cards, as well as your outstanding balances, and creates a formula that calculates your credit card utilization.

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

Credit types used (10%)

As you may know, there are several different types of credit, such as credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. According to myFICO , responsibly using a mix of these, such as credit cards and installment loans, may help your credit score.

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

Debt Consolidation: When It Can Hurt Your Credit Score

Now, here are ways that the same initial step—taking out a debt consolidation loan—may hurt your credit.

Payment history (35%)

As is the case with most loans, making late payments on a consolidation loan can hurt your credit score (depending on the severity of the situation). Loans in a delinquent status are mostly likely to have a negative impact on your credit, depending on the lenders’ policies.

Learn more about payment history .

Amount currently owed (30%)

Now, let’s say that you pay off all your credit cards with a personal loan and then you begin using them again to the degree that you can’t pay them off monthly. Any gain that you saw in your credit score will likely disappear as your credit utilization numbers rise again.

Another way that credit consolidation can harm your score is if you combine all of your credit card balances to just one credit card, resulting in a high utilization rate. But if you are able to keep it relatively low, it is less likely to negatively affect your score.

Learn more about amounts owed .

Credit history length (15%)

If you close credit cards that you pay off, you’ll reduce the age of your accounts, overall, and this can hurt your credit score.

Learn more about length of credit history .

Credit types used (10%)

If you combine all of your credit card balances into just one credit card, as described above, you won’t have opened an installment (personal) loan, so that won’t help with diversifying credit types.

Learn more about credit mix .

New credit (10%)

If you apply for a personal loan or a balance-transfer credit card and are rejected, this can cause your credit score to decrease. And if you apply for multiple loans or credit cards, looking for a lender that will accept your application, this can also hurt your score. Multiple requests for your credit report information (known as “inquiries”) in a short period of time can decrease your score, though not by much.

Learn more about new credit .

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

Investigating a Personal Loan for Debt Consolidation

When it’s time to apply for the personal loan, you’ll want to get a low rate. In February 2019, the average credit card interest rate was reported as 17.67%; this means that, by not consolidating your credit cards into a personal loan with a lower interest rate, you could be paying more interest than if you did.

When choosing a lender, ask about the fees associated with the loan. Some lenders charge fees; others,like SoFi, don’t. You can always use a lender’s annual percentage rates (APRs) as a way to understand the true cost of financing.

Also, you may consider calculating the shortest loan term that your budget can comfortably accommodate because, the more quickly you pay off the debt, the more money you’ll save over the life of the loan because you’re paying less in interest.

You can find more information about saving money as you consolidate your debts, and you can also calculate payments using our personal loan calculator.

Consolidate Your Debt with a SoFi Personal Loan

If you’re ready to say goodbye to high-interest credit cards and to juggling multiple payments each month, a SoFi personal loan may be a good option.

Benefits of our personal loans include:

•  Fast, easy, and convenient online application process

•  Low interest rates

•  No origination fees required

•  No prepayment fees required

•  Fixed rate loan

You deserve peace of mind. And by taking out a personal loan to consolidate debt, the stress of juggling multiple credit card payments can be history. Ready for your fresh start?

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 .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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If you have high-interest credit card debt and are ready to put together a plan to pay it back, you might be considering one of two popular methods: credit card refinancing vs. debt consolidation.

Both involve paying off your debt with another credit card or loan, ideally at a lower interest rate. Still, the two methods are not the same, and both options require careful consideration. Below, we’ll discuss the pros and cons of each debt payback method, so you can make an informed decision.

What Is Credit Card Refinancing and How Does it Work?

Credit card refinancing is the process of moving your credit card balance(s) from one card or lender to another with a lower interest rate. The main purpose of refinancing is to reduce the amount of interest you’re paying with a lower rate while you pay off the balance.

Common Ways to Refinance Credit Card Debt

A common way to accomplish a credit card refinance is to pay off your existing credit cards with a brand-new balance-transfer credit card. This type of card offers a low or 0% interest rate for a promotional period that may last from a few months to 18 months or more. Can you refinance a credit card that you already have? Perhaps. You can always try to approach your existing credit card issuer and ask for a lower interest rate, possibly by doing a balance transfer to a lower-rate card issued by the same company.

What are the Benefits of Credit Card Refinancing?

We’ve discussed what is credit card refinancing and its goal: to lower your interest rate. Now let’s explore some of the benefits (and drawbacks) of refinancing.

Pros

•   You may qualify for a promotional 0% annual percentage rate (APR) during your card’s introductory period. If you can pay down your debt during this time, you could potentially get out of debt faster.

•   Depending on the interest rate you’re offered, you could save money in interest charges.

•   Bill paying would be streamlined if you decide to refinance multiple credit cards into one new credit card.

•   If monthly payments are reasonable, it may be easier to consistently pay them on time. This can help build your credit score.

Cons

•   The introductory 0% interest period is short-term, and after it ends, the interest rate can skyrocket to as high as 25%.

•   There may be a balance transfer fee of 3%-5%, which can add to your debt.

•   0% interest balance transfer cards often require a good or excellent credit score to qualify.

•   Your credit score may temporarily dip a few points when you apply for a new credit card or loan. That’s because the lender will likely run a hard credit check.

Recommended: What Is the 10% Credit Card Interest Rate Cap Act?

Who Should Consider Credit Card Refinancing?

Credit card refinancing isn’t right for everyone. That said, a balance transfer to a 0% APR card could be a good move if you have a smaller debt to manage or are carrying a balance on more than one credit card. Plus, transferring multiple balances into one card can streamline bills. All of the usual credit card rules apply when you transfer a balance, so you’ll want to make every payment on time with your new card.

Refinancing may make sense if you’re looking for better terms on your credit card debt, qualify for a 0% APR, and can pay off the balance before the promotional period ends.
So, as you’re weighing your options, you’ll want to consider a number of factors, including:

•   Your credit score and credit history

•   How much debt you have

•   Your personal finances and whether or not you can eliminate the debt fairly quickly

Recommended: The Risks of Payday Loans

What Is Credit Card Debt Consolidation?

Credit card debt consolidation is an alternative to credit card refinancing. The term “debt consolidation” refers to the process of paying off multiple credit cards or other types of debt (such as medical debt) with a single loan, referred to as a debt consolidation loan. The main purpose of consolidation is to simplify bills by combining multiple payments into one fixed loan payment, while ideally also saving on interest.

Types of Debt Consolidation

There are two primary types of debt consolidation loans: a personal loan and a loan secured by your home equity. The latter could be either a home equity loan or a home equity line of credit (HELOC). Not everyone owns a home or has enough equity to qualify for home equity lending, so let’s focus on what a personal loan is and how you might use it to consolidate debt.

A personal loan (sometimes referred to as a debt consolidation loan) will often have a lower interest rate than most credit cards (with the exception of the 0% APR period on a credit card, of course). However in order to qualify for a lower rate on a personal loan, you’ll need to have a strong credit score, which will largely determine your personal loan interest rate. Depending on your financial profile, you might be able to borrow anywhere from $5,000 to $100,000.

There are pros and cons to paying off multiple credit cards with a single short-term loan. Let’s take a look:

Pros

•   Personal loans often have lower interest rates than credit cards and can save you money on monthly payments as well as on interest charges over the life of your debt repayment.

•   You can pay off multiple debts with one loan, which can take the hassle out of bill paying.

•   The structured nature of a personal loan means you can make equal payments toward the debt at a fixed rate until it is eliminated.

•   With most personal loans, you can opt for a fixed interest rate, which ensures payments won’t change over time. (Variable interest rate loans are available, but their lower initial rate can go up as market rates rise.)

Cons

•   The terms of a loan will almost always be based on your credit history and holistic financial picture (another reminder to keep an eye on personal finance basics like making timely payments). Not every borrower will qualify for a low interest rate or get approved for a personal loan at all.

•   Some lenders may charge fees, including personal loan origination fees.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies 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 off debt.

Credit Card Refinancing vs. Debt Consolidation

To recap, the difference between debt consolidation and a credit card refinance is first a matter of goals.

With credit card refinancing — as with other forms of debt refinancing — the aim is to save money by lowering your interest rate. Debt consolidation may or may not save you money on interest, but will certainly simplify bills by replacing multiple credit card obligations with a single monthly payment and a structured payback schedule. This structure and simplification can be just what it takes to help some borrowers who are struggling with credit to get their debt paid off.

The other difference is that credit card refinancing typically utilizes a balance transfer credit card that has a 0% or low interest rate for a short time. This limits the amount you can transfer to what you can comfortably pay off in a year or so. Debt consolidation utilizes a personal loan, which allows for higher balances to be paid off over a longer payback period.

Which strategy is right for you? That depends on a number of factors, including the amount of debt you have, your current interest rates, and whether you’re able to stick to a structured repayment schedule. Of course, it’s important to regulate your use of credit cards in either scenario. The last thing you want is to be paying off a personal loan or facing the expiration of a 0% interest rate when you’ve racked up more credit card debt.

The chart below sums up the credit card refinancing vs. debt consolidation story.

Side-by-Side Comparison of Key Features

The Takeaway

Credit card refinancing is when a borrower pays off their credit card(s) by moving the balance to another card with a lower interest rate. A popular way to do this is with 0% interest balance transfer credit cards. However, borrowers typically need a high credit score to qualify for the best rates on these cards. Debt consolidation, on the other hand, is when a borrower simplifies multiple debts by paying them off with a personal loan. Personal loans with a fixed low interest rate and a structured payback schedule are a smart option for consolidating debts.

If you have a relatively small balance that can be paid off in a year or so, refinancing with a balance transfer credit card may be right for you. If you have a larger balance or need more time to fully pay it off, personal loans are available.

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

Which is better: credit card refinancing or debt consolidation?

There are advantages and drawbacks to both strategies. Credit card refinancing can help you lower your interest rate, which can save you money. Debt consolidation might save you money on interest, but it will definitely simplify bill paying by replacing multiple cards with one monthly bill.

Is refinancing a credit card worth it?

Refinancing a credit card may be worth the effort because it can lower your interest rate, potentially save you money, and make payments more manageable.

Is refinancing the same as consolidation?

Though refinancing and consolidation can both help you manage your debt, they serve different purposes. Refinancing involves moving credit card debt from one card or lender to another, ideally with a lower interest rate. Paying less in interest while you pay off your debt is the main goal of refinancing. When you consolidate, you settle multiple debts with one loan. Simplifying bills into one fixed loan payment is the main reason to consider this strategy.

How do credit card refinancing and consolidation affect my credit score?

Credit card refinancing and debt consolidation might temporarily reduce your credit score because your lender will likely do a hard credit check to qualify you for the account. But with time and consistent, on-time payments, your credit score should rebound. Consolidating several credit cards into one personal loan might also help improve your credit utilization ratio, which in turn should nudge your score upward. Opening new credit accounts, however, can reduce the overall age of your credit accounts, as can closing old accounts. Both of these can ding your credit score. If you aren’t applying for other forms of financing, such as a mortgage, none of this should be a huge concern so long as you are using the credit card refinance or consolidation to reduce debt and better manage your finances.

What should I consider before refinancing or consolidating?

The most important thing to consider when thinking about credit card refinancing or debt consolidation is whether you will save money when interest and fees are factored in. It’s also important to have a good look at your credit habits. If you think having a new credit card with 0% introductory financing might result in you charging even more and falling more deeply into debt, you might want to consider a personal loan and/or explore credit counseling, in which you will work with a professional to help change unhealthy habits and develop a strategy to reduce debt.

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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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While paying off your credit cards can have a positive effect on your credit profile, this isn’t always the case. Depending on the strategy you use to wipe away your debt, you could (inadvertently) do some damage to your scores. This could make it harder to get a mortgage, car loan, or even a rental agreement in the future. Here’s what you need to know to pay down your credit obligations while protecting your credit.

What Not to Do: Ignoring Credit Card Debt

When it comes to credit card debt, the consequences of avoidance and procrastination are steep, both to your financial well-being and to your credit scores. Here’s a look at the potential fallout.

•  Interest charges will pile up: Generally, the longer you avoid paying down your debt, the more interest will accrue. The average interest rate on credit cards as of July 2025 is 20.13%. This means that even if your debt isn’t growing through new purchases, interest alone can make your balance balloon over time.

•  Late fees and credit damage: Credit card issuers usually charge fees if you don’t make the minimum payment by the due date. After 30 days of no payment, your issuer will likely report the missed payment to the credit bureaus, which can do significant damage to your credit profile.

•  Debt collection and legal consequences: Ignoring credit card debt for too long could lead to the debt being sent to a collection agency, a third party that can be aggressive in pursuing repayment. In extreme cases, your creditors might sue you, potentially leading to wage garnishment or seizure of personal assets.

Best Ways to Pay off Debt Without Hurting Credit

When managed carefully, paying off debt can actually have a positive impact on your credit profile. The key is to use tactics that reduce your balances without negatively impacting your payment history, credit utilization, or credit mix.

Consolidate Credit Card Debt

Credit card consolidation involves combining multiple debts into a single loan, such as a debt consolidation loan, ideally with a lower interest rate. This approach can make repayment more manageable and may reduce the total interest you pay. You’ll still need to make consistent monthly payments, but streamlining your bills into one can reduce your chances of missing a due date.

As long as you make on-time payments, your credit profile may benefit from the reduced credit utilization and positive payment history.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

Balance Transfer

A balance transfer involves moving high-interest credit card debt to a new card with a lower interest rate — ideally one with a 0% introductory annual percentage rate (APR). This strategy can give you a temporary break from interest charges, allowing you to pay off the principal more quickly.

To avoid credit score harm, don’t close old cards after transferring the balance — doing so can reduce your available credit and increase your utilization ratio. It’s also important to pay off the balance before the promotional period ends, or you may face high interest rates (again). Some balance transfer cards offer a 0% APR for as long as 20 months.

Automate Payments

Late or missed payments are among the biggest threats to your credit scores. Automating payments ensures your minimums are paid on time every month, which protects your payment history, a key factor in your credit score.

You can set up automatic payments through your bank or directly with your credit card issuer. You can always make additional manual payments to reduce the balance faster.

Debt Snowball vs. Debt Avalanche Payoff Strategies

One of the best ways to pay off debt without hurting credit is to use a DIY payoff plan. Here are two popular strategies for whittling down multiple debts:

•  Debt avalanche method: Here, you make extra payments on the credit card with the highest interest rate first, while making minimum payments on the others. Once the highest-rate card is paid off, you funnel those extra funds toward the card with the next-highest rate, and so on. This strategy minimizes the amount of interest you’ll pay over time.

•  Debt snowball method: With this approach, you put extra payments toward the card with the smallest balance first, while making minimum payments on the others. When that card is cleared, you focus on paying off the next-smallest balance, and so on. This gives you quick wins and a psychological boost, which can help you stay motivated.

Negotiating and Settling Credit Card Debt

Sometimes, repayment in full isn’t realistic. In those cases, negotiating with your creditor may provide relief while minimizing damage to your credit.

Workout Agreement

With this arrangement, the credit card company may agree to lower your interest rate or temporarily waive interest altogether. They may also be willing to take additional steps to make it easier for you to repay your debt, such as waiving past late fees or lowering your minimum payment.

Because this agreement is informal and not reported as negative to credit bureaus, it can help you pay off debt without hurting your credit, provided you uphold your end of the deal.

Debt Settlement

In a debt settlement, the credit card company agrees to accept less than the full amount you owe, forgive the rest, and close the account. While this might seem appealing, a debt settlement comes with consequences. A settled debt becomes a negative entry on your credit report, where it can stay for seven years. You’ll want to consider debt settlement as a last-resort option, and also be cautious of third party settlement companies that charge high fees or make unrealistic promises.

Hardship Agreement

Some card issuers offer a hardship or forbearance program for borrowers who are experiencing a temporary financial setback, such as a job loss, illness, or injury. Under these programs, the company may agree to lower your interest rate, even temporarily suspend payments. Keep in mind that the issuer might freeze your account while you’re enrolled, which means you won’t be able to use your card. Also, if the plan extends your repayment term, it could increase the total amount of interest you pay.

While a hardship program typically doesn’t impact your credit, it could if the card issuer decides to close your account or lower your available credit.

What Is the Statute of Limitations on Credit Card Debt?

The statute of limitations on debt governs how long a creditor or collection agency can sue you for nonpayment of a debt. The statute of limitations on credit card debt varies from state to state, but is typically between three and six years. Once the statute of limitations has passed, debt collectors can’t win a court order for repayment.

Even if your credit card debt is past the statute of limitations, however, it doesn’t magically disappear. Negative entries — such as late or missed payments, accounts sent to collections, and accounts not paid as agreed — generally stay on your credit report for seven years. These negative marks can lower your credit scores, making it hard to qualify for new credit cards and loans with attractive rates and terms in the future.

Does Credit Card Debt Consolidation Hurt Your Credit?

Debt consolidation can cause a temporary dip in your credit scores, mostly due to the hard inquiry from the loan application and the new account appearing on your report. However, the long-term effects are often positive if you manage the new loan responsibly.

By reducing your credit utilization ratio and maintaining on-time payments, debt consolidation can have a net positive effect on your credit profile over time. The key is to avoid racking up new balances while paying off the consolidated loan.

Recommended: What Is a Credit Card Interest Cap?

How to Consolidate Credit Card Debt Without Hurting Your Credit

The right strategy can help you consolidate debt while protecting or even building your credit.

Consider Debt Consolidation Options

Start by exploring the types of consolidation available — personal loans, balance transfer credit cards, and home equity loans/lines of credit (HELOCs) can all be used to pay off your credit cards and streamline repayment. It’s important to compare interest rates, terms, and fees to find the best fit for your situation.

An online debt consolidation calculator can show you exactly how much interest you could save by paying off your existing credit card (or cards) with a new loan or line of credit.

Get Prequalified

Before applying, see if you can prequalify for a consolidation loan. Prequalification uses a soft credit inquiry and won’t impact your score. It can give you an idea of the interest rate and terms you might receive and help you make an informed choice before formally applying for the loan.

Stop Using Your Credit Cards

Once you consolidate your balances, it’s a good idea to stop or limit use of your consolidated cards. While it’s wise to keep those accounts open (to maintain your credit history and limit), continuing to run up balances on those cards can lead to even more debt, undermining the purpose of consolidation and damaging your credit utilization ratio.

Pay Bills On Time

Payment history is generally the most important factor in your credit scores — it makes up 35% of your overall FICO® credit score. So paying your consolidated loan or transferred balance on time is critical. Even a single late payment can lead to a negative mark on your credit reports and undo some of your progress.

Set up reminders or automate payments to stay on track and build positive credit habits.

Recommended: FICO Score vs Credit Score

The Takeaway

Credit card debt can be a major financial burden, but it doesn’t have to ruin your credit or your financial future. By facing your debt and adopting a planned approach, you can gradually reduce what you owe. Whether you choose to use a paydown strategy (like avalanche or snowball), negotiate with creditors, or explore a consolidation loan, there are various strategies to help you regain control of your finances while protecting — and ultimately building — your credit.

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

Can paying off credit card debt improve my credit score?

Paying off credit card debt can have a positive impact on your credit profile. It lowers your credit utilization ratio (the percentage of available credit you’re currently using), which is a major factor in your credit scores. A lower utilization rate suggests responsible credit management. Making consistent, on-time payments while reducing debt also adds to your positive payment history, which is another key factor in your scores.

Will settling credit card debt hurt my credit?

Settling credit card debt can negatively impact your credit, at least temporarily. When you settle a debt for less than the full amount owed, it may be reported to the credit bureaus as “settled” rather than “paid in full.” This status indicates that you didn’t repay the full debt and the entry can remain on your credit report for up to seven years. However, settling is still better than leaving debts unpaid or going into default.

How long does credit card debt stay on your credit report?

Negative information related to credit card debt — such as late payments, charge-offs, and collection accounts — generally remains on your credit report for seven years. However, positive information — like closed accounts paid as agreed — can stay on your report for up to ten years, helping your credit history. Active accounts in good standing stay on your report as long as the account is open and the lender is reporting it to the credit bureaus.

Is using a personal loan to pay off credit cards a good idea?

Using a personal loan to pay off credit cards can be a smart move if the loan offers a lower interest rate. This strategy, known as debt consolidation, can simplify payments and reduce interest costs. It can also improve your credit utilization ratio (the percentage of available credit you are currently using), which is factored into your credit scores. However, it’s important to have a solid repayment plan and avoid taking on more credit card debt, or the benefits could be short-lived.

What is the best way to pay down high-interest credit card debt?

One of the best ways to pay down high-interest credit card debt is using the avalanche method. This involves making extra payments on the card with the highest interest rate while making minimum payments on others. Once that card is paid off, you funnel the extra payment to the card with the next-highest rate, and so on. This minimizes the total interest paid over time. Another good option is to transfer your balances to a card with 0% introductory APR or a lower-interest personal loan. Whichever method you choose, consistent, above-minimum payments and avoiding new debt are key to getting ahead.

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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Revolving credit is a flexible type of borrowing that allows you to access money as you need it (up to predetermined limit), repay some or all of the balance, and then borrow again. Unlike a one-time loan, revolving credit becomes available again — or “revolves” — as you pay it back. This makes it a convenient option for covering ongoing expenses or handling emergencies.

Common examples of revolving credit include credit cards, personal lines of credit, and home equity lines of credit (HELOCs). Understanding how revolving credit works, how it compares to other types of debt, and how to use it responsibly can help you avoid high-interest debt traps and maintain a healthy credit profile.

How Revolving Credit Works

When you open a revolving credit account, your lender sets a credit limit, which is the maximum amount you can borrow at any given time. You can use all or part of this limit, and you only pay interest on the amount you borrow, not the entire limit.

As you make payments, your available credit increases. For example, if your credit limit is $5,000 and you spend $1,000, you’ll have $4,000 in available credit. If you pay back the $1,000, your available credit goes back up to $5,000.

Revolving credit accounts usually require a minimum monthly payment to keep the account in good standing. If you carry a balance from one statement period to the next, you’ll pay interest on your balance. Annual percentage rates (APRs) vary but can be steep for credit cards.

💡 Quick Tip: There is a lot of debate around credit card interest caps. For consumers carrying high-interest credit card balances, however, one of the shortest paths to debt relief is switching to a lower-interest personal loan. With a SoFi credit card consolidation loan, every payment brings you closer to financial freedom.

Revolving Debt vs. Installment Debt

Revolving debt is different from installment debt (or non-revolving credit) in a few key ways:

•   Structure: Installment loans (like mortgages, personal loans, or auto loans) give you a lump sum upfront, which you repay in fixed monthly installments over a set term. Revolving credit allows you to continuously borrow and repay within your credit limit.

•   Repayment: Installment loans have fixed payment schedules and, in some cases, there may be a prepayment penalty. Revolving accounts offer variable payments depending on your balance.

•   Interest rates: Revolving credit often has higher interest rates than installment loans, especially unsecured revolving accounts like credit cards.

•   Usage flexibility: Revolving credit is generally more flexible than installment debt, since it lets you borrow as needed without reapplying for a loan. Also, some installment loans are only approved for a specific purpose, such as a car loan or mortgage.

Both types of debt can be useful tools. Which one is a better fit will depend on your borrowing needs. Revolving credit can be a good option for short-term or variable expenses, while installment debt is generally better for large, fixed purchases.

Recommended: Revolving Credit vs Line of Credit

Secured vs. Unsecured Debt

Revolving credit can be either secured or unsecured:

•   Secured revolving credit: With this type of credit, you must pledge an asset as collateral to guarantee repayment. If you fail to make payments according to the loan agreement, the lender has the right to seize and sell the collateral to recover their losses. Examples of secured revolving credit include a HELOC (backed by your home) and a secured credit card (backed by a savings account). Secured revolving accounts often have lower interest rates due to reduced risk to the lender.

•   Unsecured revolving credit: An unsecured debt is not backed by collateral. If you fail to repay the debt, the lender cannot automatically seize a specific asset (like your house or car) to recover their losses. Instead, they rely on your promise to pay. Most credit cards and personal lines of credit are unsecured. Because lenders take on more risk, interest rates on unsecured debts tend to be higher than they are on secured debts.

Types of Revolving Credit

Here’s a look at some of the most popular types of revolving credit.

Credit Cards

You can use a credit card to make purchases, pay bills, or withdraw cash up to your credit limit. If you pay your balance in full each month, you can generally avoid interest charges. If you carry a balance, on the other hand, interest will accrue, often at rates above 20% APR. Credit cards may also offer rewards, cash back, or other perks, making them a potentially valuable financial tool when managed well.

Personal Lines of Credit

A personal line of credit is similar to a credit card but with a few key differences. For one, they typically have a draw period and a repayment period. During the draw period (often two to five years), you can access your credit line and use the funds for virtually any purpose. When you make payments during this period, you free up funds to borrow again. At the end of the draw period, you’ll begin the repayment period. During this period, you no longer have access to the line of credit and must pay off the balance in full.

Home Equity Lines of Credit (HELOCs)

A HELOC is a revolving line of credit secured by your home’s equity, and your home is used as collateral for the credit line. During your draw period (often 10 years), you can borrow up to your credit limit as needed. As you repay your balance, the funds are available to borrow again. After the draw period, you enter the repayment period (usually 20 years).

HELOCs typically have lower interest rates than unsecured revolving credit because they’re backed by collateral. They are often used for home improvements, emergency expenses, or consolidating higher-interest debt. However, because your home is at risk if you default, they require careful consideration.

How Revolving Debt Can Affect Your Credit Score

Revolving credit can have both positive and negative impacts on your credit profile. Here’s a breakdown of the key factors involved in calculating your credit score and how revolving credit can impact each of them:

•   Credit utilization ratio: Your credit utilization ratio measures how much of your available credit you’re using on your credit cards and other lines of credit and is expressed as a percentage. A high utilization (above 30%) can negatively influence your credit file, while keeping it low can have a positive influence.

•   Payment history: Making regular, on-time payments on a revolving credit account adds positive information to your payment history. Late or missed payments, on the hand, can do significant credit damage.

•   Length of credit history: Lenders often view a longer history of responsible credit management as a positive indicator of your creditworthiness. Keeping revolving accounts open and in good standing over many years can have a favorable impact on your credit profile.

•   Credit mix: Your credit mix describes the different types of credit accounts you have. A healthy mix of revolving and installment accounts can positively influence your credit.

Bottom line: If you max out your credit limits or fall behind on your payments, revolving credit can adversely impact your credit. However, if you consistently pay on time and keep your credit utilization ratio low, a revolving credit account can benefit your credit file over time.

Tips for Managing Revolving Debt

If you’re struggling to manage credit card (or other revolving credit) balances, these strategies can help you get ahead of your debt and potentially save money on interest.

Budget Strategies

Making some shifts in your budget can help you pay down your balances systematically. Two strategies to consider:

•   The debt avalanche: This method focuses on paying off the debt with the highest interest rate first, while making minimum payments on the rest. Once the highest-rate debt is cleared, you target the next-highest, and so on. This minimizes total interest paid and can save you money over time.

•   The debt snowball: Here, you target the debt with the smallest balance first, regardless of interest rate. After paying off the smallest debt, you apply its payment amount to the next smallest, and so on. This approach provides quick wins, which can boost motivation and momentum.

Debt Consolidation

If you have multiple high-interest debts, consider consolidating them into a single loan, such as a personal loan, with a lower interest rate. This can simplify repayment and potentially reduce interest costs. An online debt consolidation calculator can help you determine how much you could potentially save by taking out a personal loan and using it to pay down your current balances.

💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Balance Transfer

A balance transfer involves moving your revolving debt from one credit card to another card that has a lower or 0% introductory APR. This can save money on interest, but be mindful of transfer fees and the length of the promotional period.

Credit Counseling

Working with a nonprofit credit counseling agency can be a good way to get free or low cost help with managing revolving debt. A certified counselor can help create a debt management plan, negotiate lower interest rates, and provide education on responsible credit use. This can be a good option if you’re struggling but want to avoid more damaging solutions like bankruptcy or settlement.

Debt Settlement

If you’re struggling with high-interest revolving debt and have exhausted other solutions, you might consider debt settlement. This involves negotiating with creditors, typically through a third-part debt settlement company, to accept less than the full amount owed. While this can reduce your total debt, it typically hurts your credit and should only be considered as a last resort before bankruptcy.

The Takeaway

Revolving credit offers flexibility and convenience, which can make it a handy tool for managing expenses and building credit. However, its easy access and potentially high interest rates mean it can also become a financial burden if mismanaged.

By understanding the differences between revolving and installment debt, knowing the types of revolving credit available, and following sound debt management practices, you can make revolving credit work for — and not against — your financial health.

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

Are revolving credit and revolving debt the same thing?

Revolving credit and revolving debt generally refer to the same thing — a type of debt where you can draw funds as needed, repay the money, and then borrow it again. This differs from installment debt, where you borrow a fixed sum of money and agree to pay it back over a set period through regular, fixed payments. Revolving credit or debt comes with credit limits and typically has variable interest rates. With this type of credit, you only pay interest on what you borrow, not the entire credit line.

Does revolving debt hurt your credit score?

Revolving debt can affect your credit in positive and negative ways, depending how it’s managed. If you carry large balances or max out cards, it will increase your credit utilization rate (how much available credit you’re using) and suggest higher credit risk to lenders. Missing payments or paying late can also negatively impact your credit file. However, if you keep credit utilization low and make on-time payments consistently, having revolving debt can strengthen your credit profile over time.

How can I reduce my revolving debt quickly?

To reduce revolving debt quickly, focus on paying more than the minimum each month and target high-interest balances first (the avalanche method) to save on interest. You can also try the snowball method — paying off smaller debts first — for quicker wins. Another option is to consolidate balances with a lower-interest personal loan or a balance transfer card with a 0% annual percentage rate (APR). This can reduce costs and help speed repayment.

What is a good credit utilization ratio for revolving accounts?

A good credit utilization ratio is generally below 30%, meaning you’re using less than 30% of your total available credit. For example, if your combined credit limit is $10,000, you’ll want to try to keep balances under $3,000. Credit scoring models often reward lower usage because it signals responsible credit management and less risk of default.

Can you have too much revolving credit?

Yes, it’s possible to have too much revolving credit. While a high credit limit offers a potential safety net and might positively impact your credit file (by lowering your credit utilization ratio), it also comes with some potential downsides. One is that having access to multiple open credit lines can tempt overspending. Another is that lenders may view high credit limits as a potential risk, since you could potentially utilize all that credit. This could make it harder to qualify for loans and credit with favorable terms in the future.

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Credit card debt is usually high-interest debt, meaning what you owe can snowball. You might charge some holiday gifts, then need new brakes, and then a friend asks if you can join on a low-cost getaway to Mexico. Next thing you know, you have a sizable balance due. And chipping away with minimum payments isn’t paying it down too well.

So how do you know if your credit card debt is actually too much? Take a closer look at the factors here, plus tips for what to do when your credit card debt veers into “too high” territory.

Managing Monthly Credit Card Payments

Many people believe that as long as they can afford the monthly payments, their level of credit card debt is fine. But faithfully making the minimum monthly payment on your credit card might not be a good indicator of whether you have too much credit card debt.

Generally speaking, it can be helpful to pay off your entire balance each month, but that is not a realistic option for many — and it can be easy to just pay the minimum amount required. This can be problematic: Thanks to compound interest, paying only the minimum amount can actually cause your debt to grow.

For example, say you have $5,000 worth of debt with a 20% interest rate and are paying off $100 a month. At that rate, it would take you 109 months (9-plus years) to pay off the original $5,000 and would cost you an extra $5,840 in interest alone. And, yes, as you may have noticed, the interest amounts to more than the principal in this scenario.

Curious how your credit card payments stack up? Use a credit card interest calculator to see exactly how much you can expect to pay in interest. That can help you see how the numbers stack up and then get a better handle of how your debt could grow in the future.

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

Credit Card Utilization

One helpful way to determine if you’re being smart with your credit cards is to look at your rate of credit card utilization. Credit card utilization is the amount of debt you have compared to the total amount of credit that is available to you.

It can come as a shock to people that using their full line of credit can negatively impact their credit score, but in general, it is commonly recommended to use only 30% of the credit available. Credit reporting agencies use your credit card utilization percentage as an important part of determining your credit score.

What does that look like in practice? If you have a credit card with a $10,000 limit, and you spend $1,000 on a new couch, $900 on new brakes, and $500 on a plane ticket, you’re using $2,400 — or 24% of your available credit. That’s relatively close to that 30% threshold, so you’ll want to consider treading carefully.

If, on the other hand, you made the exact same purchases but you only have access to a $5,000 line of credit, you would be using 48% of your available credit. A credit card utilization rate of 48% has the potential to negatively impact your credit score.

If you’re concerned about your credit score, you may want to keep your credit card usage to below 30% of the total credit line available to you.

💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

Debt-to-Income Ratio

Another important consideration when looking at your credit card debt is your debt-to-income ratio. Your debt-to-income ratio is essentially a measure of how much of your pretax income goes to paying monthly debt, like car payments, student loans, and credit cards.

If your debt-to-income ratio is very high, meaning that a large portion of your monthly income goes to paying off debt, some lenders might be reluctant to lend to you.

This means that you could be charged a higher interest rate on new loans or a mortgage because the lender is worried that you won’t be able to make your monthly payments — if you’re able to get a loan at all.

In general, industry professionals suggest that a debt-to-income ratio at or below 36% is considered good, but of course, that will vary by your specific circumstances.

If your debt-to-income ratio is higher than you hope, that may be one sign that you’re carrying too much credit card debt.

Keeping Credit Card Debt in Check

If you’re worried about the amount of debt you’re carrying on your credit card, there are several ways to take control.

•   First, consider making more than the minimum payment, as noted above. Many people simply stick with minimum payments because they think that is what they should pay. But increasing your monthly payment could help you pay down credit card debt faster.

•   If you’re worried about your credit card utilization rate (and are not carrying a credit card debt balance), you may simply be due for an increase in your line of credit. For example, if you’re still using the same credit card with a $5,000 limit that you got right after college, but now you have a better job and more monthly expenses, you might want to ask your lender for an increase in your credit line in order to improve your credit card utilization rate. Your debt-to-income ratio can also be helped by either increasing your income or decreasing your debt.

•   Since one of the downsides of credit cards is their notoriously high interest rates, you might consider using a personal loan to pay off your credit cards and save you some money on your monthly payments.

•   The benefit of paying off your credit cards with a debt consolidation personal loan is that you may be able to trade a high interest rate for a lower interest rate and secure a more favorable repayment plan. A personal loan allows you to make a static payment every month for a set amount of time instead of paying the minimum amount due on your credit card, which can make you feel like you’ll never get out from under credit card debt.

Bear in mind that once you’ve paid off your credit card balances, it’s important to keep them low. Running those balances back up has the potential of making your credit profile less attractive to lenders due to the increased total debt.

And in the future, keep an eye on your credit limit when you’re making big purchases — it can pay off in the long run.

Recommended: Personal Loan Calculator

The Takeaway

How much credit card debt is too much will depend upon your specific financial situation. Such factors as your debt-to-income ratio and your credit utilization can help determine if your credit card balances are getting too high.

If you have incurred a considerable amount of high-interest debt, you might consider ways to pay that off, including getting a personal loan at a lower interest rate.

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

Is $20,000 in credit card debt too much?

Whether $20,000 in credit card debt is too much will depend on a person’s unique financial situation, but in general, it’s considered a significant balance that can have a detrimental impact on your finances. The longer the balance goes unpaid, the more the interest charges will compound.

How many people have $10,000 in credit card debt?

As of 2025, a survey by Empower revealed that one in four Americans who carry a credit card balance owe more than $10,000.

What is the 2/3/4 rule for credit cards?

The 2-3-4 rule for credit cards means you can get approved for no more than two new cards in 30 days, three new cards in 12 months, and four new cards in 24 months. This can help you manage how many applications you submit and gives lenders a guideline for approvals.

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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