New Year is a time to make resolutions. In 2023, you might be determined to take control of your finances. Many people think this means getting rid of high-interest credit cards debt.

According to the Federal Reserve’s most recent credit and household debt report, credit card balances increased 15% in the third quarter 2022 over the same period 2021. This is the highest increase in 20 years. Even though they are still at historical lows, delinquencies are increasing. Higher interest rates make it more difficult to carry a balance, which makes it easier to get deeper into debt.

There is a strategy that may help. Consolidating debt can help those who are unable to pay the minimum monthly payments.

These are the steps to consolidate your credit card debt for the New Year.

1. The best consolidation tool to consolidate your debts and credit score

A balance-transfer creditcard or a consolidation loan are the two main tools to consolidate credit card debt. Each works by combining your existing debts into one payment.

You can transfer higher-interest credit cards balances onto a balance-transfercard and then pay down your debt at a lower interest rate. Balance-transfer cards typically come with a promotional period of 0% that lasts between 15 and 21 months. This allows you to get out of debt faster by not accruing interest.

Sometimes balance transfer cards charge a transfer fee, usually 3% to 5% on the total amount transferred. These cards are only available for borrowers with excellent credit (690 credit score and higher).

A debt consolidation loan can be a personal loan that is available to all credit borrowers via online lenders, credit unions or banks. You’ll only have one monthly payment if you use this loan to pay your credit cards. This fixed monthly payment is usually for two to seven year. Personal loans are more affordable than credit cards and can offer lower interest rates.

Tiffany Grant, a Greensboro-based financial counselor, doesn’t believe she has a clear preference but advises clients to look at credit scores.

Grant says that because these products work in the same way it is more about what you can get approved. Some people are unable to get approved for a card with 0% interest rates, so they may need to borrow a personal loan at a lower rate.

A debt consolidation calculator will help you make a decision by putting your interest rates and balances into it. This will show you how much debt you have. A balance-transfer credit card, for example, is only suitable if you have enough credit to pay off your debt during the promotional period.

Grant says that if the difference between interest rates for consolidation tools and existing debt is less than a few percentage points, it might be better to forgo consolidation to avoid the risk of your credit rating being damaged by applying for new credit products. Consider other options to repay debt in this case.

2. Get approved by a lender when you apply

It’s now time to apply once you have chosen your consolidation tool.

Online applications for debt consolidation loans and balance-transfer cards are common. You may be asked to give personal information such as your Social Security number, address, contact details, income, and employment information.

You may be eligible to pre-qualify for a consolidation loan. This allows you to see potential terms and minimize your credit score. You should pay attention to the qualifications criteria on the lender’s site if you are unable to pre-qualify.

Lenders will evaluate your application for credit by looking at a history that includes on-time payments, low credit utilization ratio, and minimal credit inquiries. Sarah DuBois is a spokesperson for Wells Fargo which offers both a consolidation loan and balance transfer card.

DuBois also suggests that you can take steps to increase your chances of approval. For example, making a payment on an outstanding balance which lowers credit utilization or disputing an error in your credit report.

The steps that follow after approval will differ depending on the product. You can transfer your existing debts online or over the phone to a new card issuer for a balance-transfer credit card. Transfers can take from a few days up to several weeks.

You may be able to receive funds in your bank account for a consolidation loan. These funds can then be used to pay your credit cards. You may also receive funds from other lenders.

3. Make a plan to avoid getting into debt. Keep up with your payments

Consolidating your debt can be smart, but it is only a success if you pay off all the outstanding debt and resist temptation to build up a balance with the newly released cards.

To avoid late fees, create a budget that prioritizes the new monthly payment. If you report late payments to credit bureaus, it can affect your credit score.

Plan how you will avoid debt in the future. Grant claims that most clients aren’t in debt due to poor spending habits, but because they can’t pay unexpected expenses like car repairs and medical bills.

Grant suggests that you have a $1,000 emergency fund in order to avoid cash shortages. She recommends that you don’t wait until you are out of debt to get started. Unexpected expenses can come up at any time, which could lead to you falling behind.

Instead, save as much cash as you can and make your monthly payment.

Grant states that although it may take longer than expected, you can still do both and in most cases, that is the ideal.