Is your credit card debt stressing you out? Are the payments taking up too much of your income? Refinancing can be a solution.
What is credit card refinancing?
Credit card refinancing is when you transfer your credit card debt to another lender to get a lower interest rate.
You might refinance one card or several cards.
The new lender could be a different bank that will issue you a personal loan or a different credit card that allows balance transfers.
Homeowners might consider a home equity loan to refinance credit card debt.
When is credit card refinancing a good idea?
Credit card refinancing is a good idea when you are paying a high interest rate and you can get a lower rate with a different creditor.
With a lower rate, you may be able to repay your balance faster—or at least pay less interest.
When is credit card refinancing not a good idea?
Credit card refinancing is not a good idea when you spend beyond your means on non-necessities and you haven’t committed to changing that behavior.
Some people in this situation enter credit card refinancing with great intentions but find themselves in more debt than they started with because they have an additional source of funds through the new loan or credit card.
Also, if you are currently unemployed, credit card refinancing may be impossible. Lenders want borrowers to have a source of income.
What are the advantages and disadvantages of credit card refinancing?
Credit card refinancing can save you money and help you repay debt faster.
If you refinance a maxed out credit card with a new card that has a higher credit limit, your credit utilization will be lower, which may improve your credit score.
However, there may be fees associated with the new loan.
Transferring a balance from one credit card to another often has a 3% balance transfer fee, and home equity loans have closing costs.
Make sure you will save money from refinancing even after those fees.
People with below average or poor credit may not qualify for a lower-rate loan.
What are some options for credit card refinancing?
If you have a good credit score despite your debt—which is possible if you consistently make your monthly payment on time—you will have more options.
Many lenders may want your business. If you meet their credit score and income requirements, you may be able to lower your interest rate and get out of debt faster.
Disclaimer: This is not legal or financial advice. Please consult a legal or financial advisor for your specific situation.