Credit Card Refinancing: Your Complete Guide

More than 189 million Americans have credit cards. The average household with a credit card holder carries a balance of almost $9,000 month after month.

With so many people drowning in credit card debt, it’s become a national crisis. There are options out there to help get you out of debt. One of them is credit card refinancing.

Here, we will walk you through everything you need to know about credit card refinancing so you can decide if it’s a good idea for you and your debt.

What is Credit Card Refinancing?

When you’re trying to get out of debt, it can feel like you’re swimming upstream. You’re fighting against mounting interest. Very few of your monthly payments, if any at all, are being applied to your principal balance.

Credit card refinancing is a method of moving debt from one card to another lender with a lower interest rate than the current one. Transferring the balance to a lower-interest card means your payments have more impact, and you’ll get out of debt faster.

How to Refinance Your Credit Card Debt

There are a couple of different ways to go about credit card refinancing. One is by doing a balance transfer from one credit card to another. Some cards offer incentives when you transfer balances, such as zero percent interest for 12 months.

If you’re able to get approved for a lower interest card that can handle the current balance of another card, this is a great option. However, it can be tough to get approved for a lower interest card if you’re already carrying high balances.

Another route is to go to a lender and apply for a personal loan. Bank loans typically have much lower interest rates than credit cards. So, you can apply for the loan and use that money to pay off your cards. Then you’re left with a lower payment with a lower interest rate.

Credit Card Refinancing vs. Debt Consolidation

Many people get these two confused when they are actually quite different.

Credit card refinancing has everything to do with interest rates. It won’t necessarily lower your monthly payments, and it won’t forgive any of your debt. It will lower your interest rate so that more of the amount you’re already paying will go towards the principal instead of interest.

Debt consolidation is a process where all of your credit card debts among multiple cards are all put into the same pot, enabling you to go from paying many monthly minimums down to one more affordable payment.

Consolidation is a better option for people who can’t afford to make their minimum payments every month. It’s also a credible way to get out of debt faster.

However, even if you’re not having trouble making your payments, credit card refinancing can be a good option. It can save you a lot of money in the long run.

Is Refinancing Credit Card Debt a Good Idea?

Refinancing a credit card is a great idea. It saves you a ton of money and allows you to get more bang for your buck.

However, whether refinancing a credit card will successfully reduce debt depends on the person who is considering the refinance. Refinancing works well for those who are fiscally responsible and comfortable making payments on their credit card debt.

The best scenario requires having a good credit score as well so that you can get approved for the lower interest card and/or a personal loan to perform the balance transfer. It’s an even better idea if you’re likely to have the card paid off within the zero percent interest rate.

However, if you have a ton of credit card debt and you’re close to your limits, this isn’t the best idea. Even if you get approved for another card, it merely opens up another account that can be very tempting to use as additional funds.

You need to know yourself and your spending habits before deciding to refinance your credit cards.

When to Consolidate and When to Refinance

Deciding whether to consolidate or refinance your credit cards is a fairly straightforward process. If you only have a few credit cards, a good credit score, and have a good chance at being approved for a lower interest credit card, refinancing is your best bet. It will reward you with lower interest.

If you’re having trouble affording your minimum monthly payments and have a lot of credit card debt, then consolidation is the better play. It will allow you to breathe easier without risking your credit profile by having late or missed payments.

Pros and Cons of Credit Card Refinancing

There are a lot of advantages to credit card refinancing. Here are the top three:

  • Lower interest rates
  • Lots of savings in additional interest
  • Ability to pay off the debt faster while making the same payment you’re used to paying

The three main disadvantages of credit card refinancing are:

  • It gives you another credit card account, or a massive infusion of cash with a loan, all at once. If you’re not fiscally responsible, refinancing could leave you in a worse situation than you started in
  • There may be fees associated with the balance transfer from your previous card company
  • It might be difficult to get approved for lower interest options

Is Credit Card Refinancing for You?

We hope this gives you some insight into the credit card refinancing process so you can decide whether it’s right for you.

It all comes down to your personal debt profile. After all, you know yourself and your spending habits best. For some, having new credit suddenly open is a big temptation. If you’re able to avoid that temptation, then a refinance is an excellent option.

Are you looking for more information on how to bring your debt down? Would you like to consider debt consolidation options instead? Learn more about all your choices here.

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