Credit card refinancing is similar to other kinds of refinancing: You take out a new loan or credit card to pay off the old debts. Ideally, your new loan will have a better interest rate and repayment plan than your original debt. There are several methods of credit card refinancing that could help you reduce your monthly payments to a more manageable number. You can transfer your balance to a new card, obtain a debt consolidation loan, or use your home’s equity to get a loan or line of credit. Be sure to weigh the risks and benefits of every option so that you don’t end up with even more debt.
Debt can be extremely stressful, and credit card debt, with its high interest rates, can be the most stressful kind of debt. Maybe you can make the minimum payments, but with the interest adding to your balance every month, you might not feel like you’re making much progress.
That’s where credit card refinancing can come in. You have a few options for refinancing that debt to a new credit card or a loan with a lower interest rate. Hopefully, with a little breathing room, you’ll be able to steadily pay down your credit card debt until it’s gone.
What is credit card refinancing?
Credit card refinancing is the process of moving your credit card debt from one credit card to another or getting a loan to pay off your credit card debt. Just like you would refinance your mortgage by finding one with a lower rate (and thus a lower monthly payment), your goal with a credit card refinance is to reduce your balance so you can pay it off faster.
Here are some different ways to refinance credit card debt and get on the road to a better financial situation.
Refinance credit card debt with a balance transfer
Many credit card companies would like to earn your business by offering you a balance transfer card with a 0% introductory APR. If you move your credit card debt to one of these cards, you could go from paying 15% interest or more to paying no interest for a period of 12 to 24 months. That could really help you pay down the debt.
This option is best for those with a smaller amount of debt that could feasibly be paid off within the introductory period. Use the tool below to find the ideal balance transfer card for you, all of which come with 0% introductory APR.
What you need for a balance transfer card
In order to complete a balance transfer, you will need to compile some information.
- Dollar amount. You will need to know the exact dollar amount you want to transfer from your old account or accounts.
- Account numbers. Make sure you have the account numbers handy for any of the cards you are moving balances from.
- New credit card limit. Make sure you don’t exceed the credit limit of the new card. Leave yourself some wiggle room in case you need to use the card.
- Time frame. Complete the transfer within 60 days, or the time frame set by the credit card issuer, in order to get the best terms.
Refinance credit card debt with a debt consolidation loan
Another option to consider is a debt consolidation or credit card refinancing loan, both of which refer to personal loans. Whatever you call it, the idea is to take out a personal loan with a lower interest rate to pay off your credit card bills in one fell swoop. This consolidates your various payments into one payment with regular installments, which might help you stay focused on paying down the debt.
Debt consolidation can also prevent you from having to keep track of different payment due dates and minimum amounts, which could cause you to miss a payment or be late. This is a better option for someone with a large amount of credit card debt that needs more time to pay it off.
The risks of a debt consolidation loan
There are a few issues to consider before taking out a debt consolidation loan:
- Getting approved. A large amount of credit card debt may have hurt your credit scores, making you a more risky borrower. Make sure you are truly getting a rate that’s lower than your credit cards and that you can borrow the amount you need.
- Extra fees. As with balance transfers, there may be additional fees (such as origination fees) you didn’t plan on. As always, do your homework before you take out the loan.
- Hurting your credit scores. If your credit scores are already low, you don’t want to lose more points by getting hard inquiries on your account. Look for a lender that lets you check your prequalified rate with a soft pull that doesn’t affect your credit score.
If you think a loan might be a good option for you, check out our list of the best debt consolidation loans. You can also read more about the benefits and drawbacks of credit card debt consolidation personal loans.
Fortunately, SuperMoney allows you to compare your personal loan options without hurting your credit score. Take a look at the lenders below to get started.
Refinance credit cards by taking out a HELOC
A home equity line of credit (HELOC) is similar to a credit card, but it lets you use your home as collateral. Because of that secured debt, your interest rate should be quite low.
You could use the HELOC to pay for your high-interest credit card debt. That being said, make sure that any fees associated with the HELOC, such as an annual fee, don’t add up to more than the interest savings. You would also be in pretty big trouble if you can’t pay the HELOC back and lose your house as a result.
Refinance credit cards by taking out a home equity loan
You can use a home equity loan for more than upgrading your house or getting a new roof (or even buying a car). It may also be a good option to consolidate credit card debt. If you have enough equity in your home, you could take out a loan using your home as collateral, which (similar to a HELOC) would help you get a low interest rate.
The downside to using a home equity loan
The downside to using a home equity loan for credit card refinancing is that you won’t be able to use the loan if you do need to do some home repair. And, just like with a HELOC, if you aren’t able to make the monthly payments, you could be putting your house at risk.
Should I refinance my credit card debt?
If you’re really struggling to make the monthly payments on your credit cards, you should seek a solution before it gets any worse. However, there are risks and benefits to every type of credit card refinancing. Here are some factors to consider before refinancing credit card debt.
Here is a list of the benefits and drawbacks to consider.
- Lower interest rates. If you choose to get a balance transfer card, you could take advantage of a 0% interest rate, at least for a short time. Other types of debt consolidation and home equity loans can also have interest rates that are much lower than your high-interest credit cards.
- Consolidate multiple credit card balances. The stress of managing multiple cards with different payment schedules can disappear if you refinance to a method with one monthly payment.
- Get focused with installments. If you go with a loan option, you can steadily pay down your debt instead of paying a different amount every month.
- Going back to old habits. Once your original credit card has a zero balance, you could easily run it up again. Then you would have that debt plus a loan or a new card.
- Fees undoing your interest savings. There’s always a catch, right? A balance transfer credit card could have a transfer fee and a debt consolidation loan could have origination fees. Home equity options will have fees as well. Run the numbers before you sign up.
- Ending up with a higher interest rate. Some credit cards with a 0% introductory rate will end up with a 20% interest rate when the introductory period is over. If you started out with a 15% interest rate, you could actually end up in a worse position if you didn’t pay down your balance.
Other debt management options
If you’re facing an overwhelming amount of debt and none of these options seem right for you, you might want to consider a debt management plan with a credit counseling agency (there may even be a nonprofit credit counseling agency willing to work with you). However, if you prefer a different approach, you may want to look into the services of a debt settlement company instead.
What is credit card refinancing vs. debt consolidation?
They both refer to moving debt from one credit card or loan to another. But in the case of debt consolidation, you are moving multiple debts into one new debt, hopefully with a lower interest rate.
Will refinancing hurt my credit?
Refinancing credit card debt should not hurt your credit unless applying for a loan causes a hard credit inquiry. Look for loans that show you a preapproval rate.
That being said, if you make late payments on your new card or loan, that will definitely hurt your credit.
When should you refinance your credit card?
You should think about credit card refinancing when you aren’t making any progress paying down your credit card debt. Be sure to choose an option with manageable interest rates and terms.
- Credit card refinancing is the process of moving your credit card debt from one credit card to another or getting a loan to pay off your credit card debt.
- You can transfer your balance to a new credit card with a 0% interest rate for a certain period of time. This is best for those with a small amount of debt that can be paid off in that amount of time (usually 12 to 24 months).
- You can also get a debt consolidation loan and use it to pay off your credit cards. This is better for larger amounts of debt because you will have more time to pay it off.
- Another option is credit card refinancing with a HELOC or home equity loan. While these have low interest rates, they also could result in you losing your home if you can’t make the monthly payments.
View Article Sources
- What’s the difference between a credit counselor and a debt settlement or debt relief company? — Consumer Financial Protection Bureau
- Should I use a reverse mortgage to consolidate my debts? — Consumer Financial Protection Bureau
- What is a Credit Card Consolidation Personal Loan? — SuperMoney
- 6 Strategies to Pay Off Credit Card Debt in 2022 — SuperMoney
- Is It Good to Pay Off Credit Card Debt with a Personal Loan? — SuperMoney
- Discover the 5 Best Ways to Consolidate Credit Card Debt — SuperMoney
- Top 10 Ways to Consolidate Credit Cards — SuperMoney
- How Much Is Too Much Credit Card Debt? And What to Do About It — SuperMoney
- Should You Use a HELOC to Pay Off Credit Card Debt? — SuperMoney
- How To Pay Off Debt With A Personal Loan — SuperMoney
- A Complete Guide To Debt Consolidation — SuperMoney
- Ultimate Guide to Credit Card Debt — SuperMoney
- Best Credit Cards for Debt Consolidation | August 2022 — SuperMoney
- Best Debt Consolidation Loans | August 2022 — SuperMoney
- 2021 Consumer Credit Card Industry Study — SuperMoney
Cara Corey is a writer and editor who loves to help people make sense of confusing topics. Her work has been featured in many blogs, newspapers, and magazines, including the Des Moines Register, Boulder Daily Camera, Better Homes and Gardens, and Parents Magazine.