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Credit Card Refinancing: Best Option vs Debt Consolidation Loans?

Jordan Beaumont
Financial Guru
Updated: 6/2019
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Credit Card RefinancingIntroduction

One of the biggest sources of debt in the US today is credit card debt. It’s estimated that the average American has more than $5,000 in credit card debt. This debt is one of the worst forms of indebtedness a person can get into because of the interest rate that it can tend to carry. Most cards come with rates that are at least 10%. Some come with rates that are in excess of 20%. This can be quite difficult to pay off, especially when the minimum payment gets taken into account.

Cards are set up with low minimum payments that make it seem as though the debt is affordable. However, those who pay only the minimum each month will barely hit the principal amount of the loan. This will especially be the case when the debt gets larger. Those who have more than one card can find they have multiple minimum payments, and juggling these debts can become very difficult to handle if they take up too much of a monthly budget. If you find yourself in credit card debt, it might be time to look into a strategy that can cut the amount of interest you’ll have to pay over time.

One option for paying off credit cards quickly is coming up with more money to pay the balance down quickly. This is possible if you have a relatively small credit card debt. When you get closer to the average level of debt, it can be more difficult to pay off the debt quickly, and this can cause you to pay more interest. In this situation, you might want to look into refinancing your credit card debt or look into a debt consolidation loan.

Credit Card Refinancing

What Is Credit Card Refinancing?

Simply stated, credit card refinancing is the process of taking credit card debt that has a high interest rate and taking advantage of a lower rate. There are a couple of options that can allow you to take advantage of a lower interest rate on your credit card debt. The first option simply requires to you call up the bank that gave you the credit card. Upon calling the bank, you should ask if it would be possible to have your rate cut. This will not always be possible, but sometimes banks will work with their current cardholders to keep earning a bit of interest. The other option will take that interest-earning option from the bank, which is why they are sometimes willing to work with their debtors.

The second option is refinancing through a balance transfer. This will be possible only for those who have a good credit score or those who already have another card open that has no balance. Effectively, what you’ll need to have available to take the option for a balance transfer is enough credit on another card to take care of the combined balances on any other cards you might have. Banks will frequently send out ads offering balance transfers, and there are also online references that will discuss the top balance transfer options at any given time. Keep in mind that these options will change from month to month.

The best balance transfers are those that allow for a 12- or 18-month interest-free period. Others will offer lower rates of 1.9%, 2.9% or some other low rate for a longer period of time. Interest-free offers are usually better. The 12 or 18 months is effectively the amount of time you’d have to pay off the credit card debt. If you fail to do so, the normal interest rate would apply to any balance you still owe at the end of the interest-free period. This could easily go up to 15%, 20% or even more. One thing that’s important to remember is the balance transfer fee that will likely be charged by the bank or credit card company. If there is no balance transfer fee and an interest-free period of a year or more, this would be the option to jump on. A common balance transfer fee will be 3% or 5% of the outstanding balance.

Credit Card Refinancing

Pros and Cons of Credit Card Refinancing

There are several benefits that can come from deciding to refinance a credit card. The first is obviously the reduction or elimination of the interest rate you’ll pay. A lower interest rate means that more of your monthly payments will go toward paying off the principal of the debt. This should allow you to pay off the debt at a much quicker rate than would otherwise be possible. If you have several credit card debts outstanding, making multiple balance transfers could also cut the minimum you need to pay each month. This could improve your cash flow quite a bit. Another benefit is the motivation that should ensue when you see the overall balance dropping more rapidly. As the amount of the debt comes down, there should be excitement that could lead you to paying the debt even more quickly.

Another major benefit of refinancing credit card debt is not as evident. Unless a card you already hold offers the option to initiate a balance transfer, you’ll need to open another card. This should add to the amount of credit you have available, which will actually improve your credit score after a few months as long as you keep current with all of your payments. Additionally, because there is more credit available, the credit utilization percentage will come down. For example, if you have a $5,000 credit line on one card and owe $4,000 on it, your credit utilization percentage will be 80%. That’s high, and it will negatively effect your credit score. If you decide to open another card, and the bank gives you a $5,000 limit, you’d have a credit utilization percentage of 40%, which will make you look like less of a risk. As long as you add no more debt, it will also improve your credit score. This can really be beneficial if you’re looking to buy a house in the near future.

There are also cons that can come with refinancing credit card debt with a balance transfer. The first is the length of the interest-free period. If you cannot pay off the debt within the interest-free period, you’ll wind up with a high interest rate on the debt again. This rate will likely be variable, which means that it could go up even more. One way to avoid a higher rate is to transfer the debt again.

Another negative that’s associated with balance transfers is tied to the fact that there is no fixed payment plan. All that’s required is paying the minimum each month. While having a year or so without interest will allow you to cut down on your debt more quickly than making minimum payments with interest, the benefit will likely be negligible. Additionally, a balance transfer does nothing to ensure that you add no more debt while the interest-free period is in effect. In other words, you could emerge from a balance transfer with more debt than you started with if you’re not careful.

Credit Card Refinancing

What Is a Consolidation Loan?

Another way to refinance credit card debt is through a consolidation loan. Effectively, the way a consolidation loan works is to take all of a person’s accumulated credit card debt and put it all under a single loan. Banks offer personal loans that can work as consolidation loans, and there are now also nontraditional lenders that will do the same. There will be no interest-free period with a consolidation loan, but there will be a fixed payment structure and a fixed loan period. As long as the monthly payment is made in a timely fashion, a borrower will pay off the loan within the stated time period. Like credit card refinancing using a balance transfer, there are pros and cons associated with taking out a consolidation loan.

Pros and Cons of Consolidation Loans

The first pro of a debt consolidation loan is the ability to cut down on the interest rate. You probably won’t be able to cut the interest rate as much as as you would with a balance transfer, but it’s likely you’ll be able to cut it considerably when compared to normal credit card rates. Another benefit of a debt consolidation loan is the fixed interest rate. There is usually no introductory period with an interest-free rate, you’ll pay the same interest rate over the course of the loan. Yet another benefit of a debt consolidation loan is the possibility of cutting your monthly payments down. If you have a lower rate and fewer minimum payments coming out, you might be able to pay what your minimum payments were combined and pay off the debt more quickly.

Another pro of taking out a debt consolidation loan is the fixed term. You know exactly how long it will take to pay off the debt when you take out a debt consolidation loan. There is no guessing as there would be when you pay the minimum or the minimum plus a little more on a credit card. Like a credit card balance transfer, you might see your credit score go up after a few months when taking out a debt consolidation loan. The reasoning will be the same. You’ll have more available credit with a solid payment history, and your credit utilization percentage on your revolving credit lines will be lower.

One major negative associated without taking out a consolidation loan is tied to the lack of an interest-free period that can allow you to cut more of the principal off quickly. Another major con that’s associated with debt consolidation is similar to that associated with refinancing through balance transfers. There’s no mechanism tied to debt consolidation that will keep you from going into more debt. You can still spend, and you’ll likely have more wiggle room on credit cards that are no longer maxed out. Therefore, you could wind up in more debt at the end of the loan term than you were at its beginning.

Conclusion

Both debt consolidation loans and credit card balance transfers can be great ways to refinance credit card debt. Both will give you the ability to cut the amount of interest you’ll have to pay over time, and it’s possible that you can improve your cash flow with fewer payments to make each month. However, these loans are not sure-fire ways to ensure you never go into debt again. With the ease of accessing credit in the US, it’s also easy to fall into more debt if you’re not careful with your spending. Paying off debt quickly is a financial win, but paying off one debt and getting into another one will not lead to financial freedom and could lead to even more problems down the road.

FAQ

General Credit Card Refinancing Questions

This section covers some of the most popular questions people have about credit card refinancing. Use this section to get a solid foundation so you can handle more complex questions.

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What is credit card refinancing?

Credit card refinancing is the process of consolidating your credit card debt into a single payment. You can lower your interest rate and save money by refinancing.

Is refinancing credit card debt a good idea?

For many people, yes. You need to make sure that the interest rate you’re getting is better than the average of your current rates to ensure you’re getting a good deal.

How does credit card refinancing work?

Credit card refinancing works by taking all of your credit card debt and putting it into one account. This account should have a lower interest rate than your average interest rate, meaning you’ll pay less.

Should I refinance to pay off credit card debt?

Refinancing is one of the most effective ways to pay off credit card debt. However, make sure you can make your new monthly payments, or you’ll find yourself falling behind again.

Can you refinance a credit card?

Yes, it’s almost always possible to refinance a credit card. You’ll need to talk to your card issuer and look at other financial institutions to see what your best option is.

Can you refinance credit card APR?

Sort of – you can negotiate a new APR with your current credit card company, or you can refinance all of your credit card debt to get a new APR with your new account.

Can you refinance with high credit card debt?

Yes, in most cases the people that are most likely to refinance are those with high credit card debt. Refinancing lowers their payments and lets them get out of debt faster.

Why do I close credit card when I refinance?

You close your credit card when you refinance to prevent yourself from accumulating more debt that you won’t be able to pay off.

Is it worth it to consolidate debt?

That depends on your specific situation. Many people find huge financial benefits when they consolidate or refinance their debts.

Can credit card debt be forgiven?

Yes, in some cases. However, credit card companies are not likely to forgive your debt without very specific legal requirements.

Is consolidating credit card debt good?

Depending on your situation, consolidating your credit card debt can be the best way to lower your payments and pay your debts down faster.

Credit Card Refinancing and Credit Scores

We’ll answer the most common questions people have about credit card refinancing and credit scores in this section.

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Does credit card refinancing affect your credit score?

Yes, but the way it will affect your credit score depends on your specific situation and how you handle your refinanced credit.

How to refinance credit card debt with bad credit?

The best way to refinance credit card debt with bad credit is to work on repairing your credit. This will give you access to better loan rates that can help you pay your debt off faster.

Is consolidating credit cards bad for your credit?

It can be, it depends on how you structure your consolidation. However, temporary credit hits from consolidating won’t be as bad as defaulted or delinquent accounts.

Will Debt Consolidation hurt my credit?

It may hurt your credit initially, depending on your particular situation. However, if you make your payments on time, then your credit score will rapidly increase.

What credit score is needed for a debt consolidation loan?

There’s no single credit score needed for a debt consolidation loan. You’ll need to talk to different lenders to see what their requirements are.

Does debt relief ruin your credit?

That depends on lots of different factors. However, even if debt relief hurts your credit in the short term, it gives you a way to start fresh and re-establish your credit score.

How do I get out of credit card debt without ruining my credit?

The best way to get out of credit card debt without ruining your credit is to use smart budgeting to make extra payments on your credit card. This will lower the amount of interest you pay overall and doesn’t require any new financial products.

Is credit card refinancing part of credit repair?

It can be. It depends on your specific situation and what your credit advisor recommends. Make sure to double check any advice you get so you fully understand the situation you’re getting into.

Can refinancing credit card debt increase your credit score?

Probably not in the immediate term, but over the medium to long term refinancing will help your credit score as long as you continue to make regular payments.

Different Ways to Refinance Credit Cards

This section covers some of the different ways you can use to refinance your credit cards.

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What is credit card refinancing vs debt consolidation?

There may or may not be a difference between credit card refinancing and debt consolidation, depending on your situation. The terms are often used interchangeably.

Are there any legitimate credit card refinancing?

Yes, there are lots of legit credit card refinancing companies. Talk to your bank or look for online peer to peer lending networks that specialize in credit card refinancing.

Can you roll credit card debt into a refinance?

It’s possible to roll credit card debt into a refinance, but you’ll need to talk to your lender to understand your specific options.

What is a credit card refinance loan?

A credit card refinance loan is where you get a single loan to pay off your various credit card debts. This should lower your interest rates and make it easier to get out of debt.

Can you consolidate credit card debt into a refinance?

It depends on the terms and conditions of your specific refinance agreement. You’ll need to talk to your lender for more information.

How to refinance credit card interest rate?

There are a few options to refinance your credit card interest rate. You should talk to your card servicer and other refinancing services to see what options are best for your specific situation.

Should I refinance my credit card debt with personal loan?

Personal loans to consolidate and refinance credit card debt are a popular option. However, you need to make sure you’ll be able to make your loan payments and don’t put more debt on your credit cards after you’ve consolidated them for this to work.

What is the best way to consolidate and pay off credit card debt?

Everyone’s credit and debt situation is different. It’s best to speak to a debt relief specialist or financial advisor to see what the best options are in your case.

Is it better to get a loan to pay off credit cards?

For some people, yes. Others benefit more from using a 0% APR balance transfer card. A financial planner can help you determine the best option for your situation.

What is the best way to refinance credit card debt?

There’s no single best way to refinance credit card debt, as everyone’s situation is different. That means you’ll need to explore options for your particular financial situation.

How do I pay off multiple credit cards?

You have a few options to pay off multiple credit cards. You can use a balance transfer card, a debt consolidation loan, or different budgeting strategies to pay off your debts.

What is the best way to pay off credit card debt?

The best way to pay off credit card debt depends on your specific situation. You should talk to a certified financial advisor to see what options are best for you.

How do I eliminate credit card debt?

There are a few ways to eliminate credit card debt. You can consolidate the debt and/or refinance it to let you pay it off faster. You can also use budgeting strategies to make extra payments on your debt.

Can I refinance credit card debt without closing my credit cards?

It’s possible to refinance credit card debt without closing your credit cards, but you need to be very careful that you don’t accumulate more debt on those cards.

Is debt relief the same thing as credit card refinancing?

No, credit card refinancing can be a part of debt relief, but debt relief includes more things than just refinancing your credit card debt.

What are different ways to refinance credit card debt?

You can refinance credit card debt by getting a consolidation loan, using a balance transfer card, or by using specialized refinancing products that financial companies offer.

Specific Credit Card Refinancing Questions

We’ll answer questions about refinancing specific credit cards and specific companies in this section.

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Can I refinance Lowe's credit card?

It’s possible to refinance a Lowe’s credit card, but you’ll have to do so with another company, as Lowe’s doesn’t do refinancing itself.

Does SoFi refinance credit card debt?

Yes, SoFi will refinance or provide consolidation loans for credit card debt if you meet the platform’s qualifications.

How to refinance business credit card debt?

Business credit card debt can be more complex to refinance. You should talk to a financial advisor or accountant to see what your best options are for your unique situation.

How to refinance Home Depot credit card at 0?

You’re probably not going to find a way to refinance your Home Depot credit card at 0. The one exception might be using a balance transfer card and paying the balance off before the deferred interest period kicks in.

Is National Debt Relief any good?

National Debt Relief has produced lots of good results for consumers. You should talk to them about your specific situation to see what kind of help they can offer.

Can you refinance credit card debt online?

Yes – there are lots of different places you can refinance credit card debt online. Check out peer-to-peer lending networks for some of the most popular options.

What is the best online site to refinance credit card debt?

Everyone has different situations for their credit card debt, so there’s no single best option from everyone. You should use pre-qualification offers to see what kind of rates you’ll get to determine your best option.

Other Questions About Credit Card Refinancing

This section covers questions that don’t fit into our other categories. Check here if you can’t find your question elsewhere.

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Does credit card debt affect refinancing?

Yes, credit card debt can affect refinancing. You should talk to your lender about your debt to see what kind of impact it can have.

Is it smart to consolidate debt?

For many people, yes. Consolidating debt should lower your interest rate and monthly payment, making it easier to pay off your debt and letting you pay it off faster.

What is the best debt consolidation company to use?

There’s no single best debt consolidation company to use. We recommend talking to different companies to see what kind of offers they’ll give you.

How do you negotiate with a credit card company?

The best way to negotiate with a credit card company is to recognize that they want you to make payments. Explain how your proposal will get them what they want for the best chance at success.

When should you refinance credit card debt?

You should refinance credit card debt when you have an offer that will lower your average interest rate enough to make it easier to pay off your debt.

What are the benefits of refinancing credit card debt?

There are several benefits to refinancing credit card debt. It lowers your monthly payment and your interest rate. That means you’ll pay less over time and you’ll also pay your debt off faster.

Are there any drawbacks to refinancing credit card debt?

There aren’t many drawbacks that are a natural part of refinancing – the biggest risk is that you reaccumulate more credit card debt, undermining the purpose of refinancing.

Jordan Beaumont

Jordan Beaumont

Financial Guru

Jordan's work focuses on helping people reach their financial goals so they can spend more time with family and friends and less time worrying about their budget. After finishing college with a degree in Accounting and Communication, he realized that these are the most important things in life and that people shouldn’t miss out because of money.

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