Credit cards are a convenient financial tool, but many people get stuck in a debt spiral. A typical American household now carries $10,000 in credit card debt!1
Tackling credit card debt can help you become financially independent! But paying off credit card companies can be hard when your interest rates are too high. You can refinance with installment loans or consolidate if you need help managing your credit card debt!
What Is Credit Card Refinancing?
If your repayment terms are not ideal for your financial situation, you can change them! Credit card refinancing is the act of replacing an existing card with another to obtain different repayment terms, such as a lower annual percentage rate.
Borrowers can refinance with the same credit card issuer or a different one. You can first attempt to negotiate with your current credit provider to get better repayment terms or go ahead and apply for a new credit card.
Credit card companies have different eligibility requirements, but creditors will focus on:
- Your credit score
- Your recurring income
- Your existing debt
Benefits of Credit Card Refinancing
Refinancing a card can significantly benefit borrowers. You could get lower payments, fixed rates, and a faster repayment plan through credit card refinancing.
Lower Monthly Payments
Suppose you applied for a new card with a thin credit file or a low credit score. You may have received a subpar interest rate offer that stuck you with a high monthly payment. Credit card refinancing could help you get a lower interest rate, making payments more affordable!
Fixed Interest Rates
Many credit cards have variable interest rates that fluctuate over time. Monthly payments change with variable rates, making it hard to adhere to a budget plan. But a fixed monthly payment may be more affordable.
Credit card refinancing with a new company could help you get a fixed interest rate for a predictable payment schedule. Knowing how much money to keep in your checking account can help you avoid an overdrawn bank account.
Fast Repayment Plan
You could have a faster repayment plan when you refinance credit card debt! Lower interest rates can help you save more money. You can use that extra income to pay off debt quickly. Paying off existing debt gives you the financial freedom to do whatever you want since you have fewer payment obligations.
What Is Debt Consolidation?
Debt consolidation is when a borrower uses a substantial loan or credit line to pay off multiple debts instead of worrying about paying multiple debts. Credit card debt consolidation can help borrowers keep track of monthly expenses and save money.
Borrowers can use almost any sizable installment loan as a debt consolidation loan. Qualification for debt consolidation loans depends on your credit score, monthly income, and payment history.
Benefits of Credit Card Debt Consolidation
Debt consolidation can help borrowers regain control of their finances and save money. If you use a credit card consolidation loan, you may have fewer monthly bills, lower interest rates, and extended repayment terms!
Fewer Monthly Payments
Do you have multiple credit cards with varying interest rates and minimum payments? Debt consolidation allows you to merge various credit balances, so you have one monthly payment! Having fewer due dates to remember can make it easier to avoid missed payments. Missing even one payment can severely damage your credit score. Simplifying your expenses can help you improve your payment history over time!
Lower Interest Rates
Debt consolidation can help you get a lower interest rate to save money! If your credit cards have high rates, you can replace all your credit accounts with one low-interest loan. A low-interest rate loan can decrease your monthly expenses! Smaller monthly payments can make it easier to save money fast on a low income for vacations, retirement, etc.
Clear Repayment Terms
Consolidating debt is an effective personal finance strategy. Replacing your credit card debt with a consolidation loan can help you get a clear repayment plan that lasts a few months or years.
Your loan agreement will specify the following:
- Your monthly payment amount
- Your interest rate and APR
- The number of payments you have to make
- Your final payment date
What Is the Best Debt Consolidation Loan?
The best loan to consolidate debt depends on your debt amount, credit score, and repayment preferences. There are several financial options for debt consolidation, such as personal loans, balance transfer credit cards, and home equity loans.
Personal Loans
A personal loan is an installment loan that provides a lump sum quickly. Personal loans have extensive loan ranges and repayment lengths. If you have a few thousand dollars in debt, you may be able to consolidate it with one personal loan. The interest rates with personal loans are generally decent and lower than credit cards, so that you can obtain lower monthly payments.
Potential borrowers typically need a good credit score and a steady income. However, there are bad credit loans available! You may still qualify for a debt consolidation loan with poor credit if you provide proof of repayment.
Balance Transfer Credit Card
A balance transfer is a credit card transaction that involves moving debt from one credit account to another. Balance transfer cards are convenient because you can add all your credit card debt to one account. Some credit card companies offer a zero-interest introductory APR period but pay close attention to the rate after the promotional period. Often, the interest rate after the first few months is very high.
Credit card balance transfers are convenient, but they will incur fees. The credit card issuer will charge balance transfer fees based on a percentage of the debt amount. Suppose you have multiple credit accounts and high credit card balances. In that case, you should expect to pay a hefty balance transfer fee.
Home Equity Loans
A home equity loan is a secured loan option for homeowners. You could get a sizable loan to consolidate credit card debt by using your home as collateral. However, your home must have equity to qualify for a home equity loan. In addition, you must have a decent credit score and proof of income.
Secured loans are risky because if you fall behind on payments, you could lose possession of your personal property. However, secured online loans lower the lending risk for lenders. You could get better loan terms with a bad credit score by using collateral. If you apply for a home equity loan and then change your mind, know that many lenders adhere to the three-day cancellation rule. You have three business days to cancel your loan agreement without penalty.
Credit Card Refinancing or Debt Consolidation: Which Is Better?
Can’t decide between consolidating debt and refinancing it? Credit card refinancing and debt consolidation offer financial relief. The best financial solution for your current situation depends on how many credit cards you have and the current debt amount.
If you only have one credit card, credit card refinancing is a great option! Borrowers need to pay a balance transfer fee for credit card refinancing. You need to pay a fee for each transfer if you have multiple credit cards. A balance transfer fee can be substantial if you have a lot of debt since it is equivalent to a small percentage of the debt.
Choose debt consolidation if you have a lot of credit card debt or multiple credit cards. Instead of paying to transfer your various credit card balances to one account, you can get a lump sum to pay off creditors.
Whether you choose to refinance or consolidate, ensure you take the time to do thorough research. Compare lenders and loan offers to find the most economical option. Making a hasty financial decision can leave you worse off than before applying for a new credit card or loan.
Can Credit Card Refinancing or Debt Consolidation Hurt My Credit?
Consolidating debt and refinancing it will both affect your credit to an extent. Submitting an application will automatically decrease your credit score. You may have to apply with multiple lenders if you have a bad credit score. However, debt consolidation and refinancing can benefit your FICO score over time!
Your credit score depends on the calculation of five categories:
| Credit Score Rating | Score Range | Tips for Improvement |
| Excellent | 750-850 | – Maintain low credit card balances – Keep accounts open for a longer history – Diversify types of credit (installment loans and revolving credit) |
| Good | 700-749 | – Pay all bills on time – Work on reducing overall debt – Avoid opening too many new accounts in a short period |
| Fair | 650-699 | – Set up payment reminders or auto-pay – Consider a debt consolidation loan to manage debts – Review credit reports for errors and dispute them |
| Poor | 550-649 | – Prioritize paying off high-interest debts – Consider a secured loan to build credit – Consult a credit counseling service |
| Bad | 300-549 | – Work with a credit repair service – Use a cosigner for loans and credit cards – Make a budget and stick to it |
FAQs on Credit Card Refinancing vs Debt Consolidation
Your credit score plays a significant role in determining your eligibility for credit card refinancing. A higher score may get you a lower interest rate, while a lower score might limit your options.
While a balance transfer credit card can be a great tool for refinancing credit card debt, it often comes with fees. These fees are usually a percentage of the amount you’re transferring, so make sure to factor this into your decision.
A debt consolidation loan is a specific type of personal loan designed to pay off multiple debts. It simplifies your payments into one fixed monthly payment, often at a lower interest rate.
Yes, a debt consolidation loan allows you to combine multiple revolving credit debts into one loan. This can make managing your debts easier and could save you money if the loan has a lower interest rate.
Missing a payment can negatively impact your credit score and may result in additional fees. Always aim to make your fixed monthly payments on time to avoid these consequences.
A fixed interest rate remains the same throughout the loan term, making your payments predictable. Variable rates can change, often in line with market conditions, which can make your payments fluctuate.
While balance transfer cards are commonly used for refinancing revolving credit debt, some also allow you to transfer other types of debt. However, the terms and fees may differ, so it’s essential to read the fine print.
Qualifying for a personal loan or a balance transfer card depends on various factors like your credit score, income, and existing debt. Some people find it easier to qualify for a personal loan than a balance transfer card, especially if they have a steady income but a less-than-perfect credit score.
Absolutely! A personal loan is a versatile financial tool that can be used for various purposes, not just debt consolidation. Whether it’s for home improvements, medical expenses, or even a vacation, a personal loan can offer the flexibility you need.
CreditNinja: The Bottom Line on Credit Card Refinancing vs Debt Consolidation
Americans have surpassed $1 trillion in credit card debt!2 If your credit debt has gotten out of hand, you may think about credit card refinancing vs debt consolidation. Either option is good when you find it challenging to manage your finances. But ensure you pay attention to the interest rates and additional fees when deciding between a new loan and a credit card.
A CreditNinja personal loan could help you tackle that outstanding debt! Apply for an online personal loan today to improve your personal finances. If you are eligible, you’ll get a personalized loan amount, interest rate, and repayment terms.
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