What is Credit Card Refinancing?

Credit card debt can grow to become a massive hindrance to your financial wellbeing. What starts as one late payment can snowball into a storm of extra fees and interest. Additionally, going through unpredictable financial crises like losing a job can change the entire trajectory of your financial standing in just a few months. If you ever get to the point where you have tons of debt built up, you should look into refinancing your credit card debt, or moving around your debt balances between other lenders to optimize your payback strategy. Let’s take a closer look at some helpful options.

The Two Main Ways to Refinance Credit Card Debt

The two major methods of refinancing credit card debt are moving the debt to a balance transfer credit card, a card with an introductory 0% interest rate, or paying off all the current debt with a personal loan. Each of these options has different pros and cons; however, both offer considerable benefits in comparison to typical credit cards when it comes to paying back what you owe.

Refinancing With Balance Transfers

When you do a balance transfer, you are moving debt from a current credit card to a new one that has better policies. You can scout some of the best balance transfer cards through this link.

Pros of Balance Transfers - Balance transfer cards offer an introductory 0% APR period that can last up to 20 months, depending on the card. This means that if you transfer your current debt to this type of card, your debt will not grow by a single penny during the promotional period, as long as you make all of your payments on time. This gives you an opportunity to make a significant impact on your debt sum.

Cons of Balance Transfers - Balance transfers typically come with a transfer fee that ranges between 3% to 5%. That means that whatever debt you are looking to refinance will grow by the amount of the transfer fee percentage immediately. Regardless, this is a relatively small price to pay if your debt is ballooning from its own interest rates. Another potential con of balance transfer cards is that if you fail to make a single minimum payment on time, your 0% APR period could immediately be revoked. Not only that, but it could also be possible that you will have to pay your entire transferred debt amount upfront. Knowing this, make sure to be extra careful when paying back debt on a balance transfer card. Additionally, some balance transfer cards won’t let you transfer past your credit limit, so extremely massive amounts of debt would have to be refinanced in other methods as well. Lastly, considering that a balance transfer card is still a credit card, you can actually increase your debt every month if you are careless in your spending.

Refinancing With a Personal Loan

The other common option of refinancing your credit card debt is by paying it all off upfront with a personal loan, then paying off the loan in regular installments.

Pros of Personal Loans - Personal loans typically have lower interest rates than credit cards. This means that your debt will stop growing at uncontrollable rates, making it easier to pay off a personal loan in the long run. Additionally, personal loans force you to have a payment plan over a set period of time. Balance transfer cards, on the other hand, only require a minimum every month meaning your debt can actually grow from your own accord. Personal loans pretty much force upon you more payback responsibility. Lastly, personal loans can be more accessible than balance transfers because lower credit scores will not completely exclude you from getting a loan, although your loan interest rates will increase.

Cons of Personal Loans - If you take out a personal loan, you will always have to pay interest, as the interest starts accruing right away. Additionally, considering that there is a set payment plan, you lose flexibility. For example, if you had one month where you just couldn’t pay back the required payment, that could be bad news for you. Lastly, if your credit score is already super low, there could be a possibility that the interest rate on a personal loan will almost be as high as that of the original debt. As with all debt and debt refinancing, be sure to consider the monthly payments and ensure that you can make them on time.

Final Thoughts

Having a large debt that grows by itself is one of the most daunting and unfavorable financial situations; however, it is not impossible to get out of it. With options like balance transfers and personal loans, you can certainly refinance yourself out of debt if you put the right amount of dedication, planning, and frugality into it.