Credit Card Refinancing with a Personal Loan

Credit cards come with their fair share of benefits. They’re convenient, usually provide some sort of rewards or discounts, and offer cardholders a lot of flexibility. On the flipside, those perks could come at the cost of high interest rates. If you’re the type of cardholder that spends regularly, but only makes the minimum monthly payment on your cards, it won’t be long before you feel like you need a little breathing room as the interest piles up.

Never fear, you have options – and one of them is credit card refinancing. Refinancing allows you to move high-interest credit card debt to another credit card or a loan with lower rates. Let’s find out more about how this works, especially with personal loans.

How Does Credit Card Refinancing Work?

Borrowers have two common tools to use for refinancing their credit card debt: balance transfer credit cards and personal loans. They both involve a pretty simple step-by-step process. Here’s how credit card refinancing works:

1. You apply for a balance transfer card or personal loan with a lower annual percentage rate (APR) than your current debt and get approved.
2. You use your new card or loan to pay off your old card’s balance, which transfers the credit card debt to your new financial product.
3. You chip away at your debt by making monthly payments on your new, refinanced balance.

Refinancing with a Personal Loan

Moving your balance to a personal loan with lower rates could save you money on interest, allowing you to put more money towards your debt and potentially pay it off faster. However, there are some things to consider if you want to refinance your credit card with a personal loan.

Credit Requirements

Your financial history and credit score play a big role in what sort of rates you qualify for, and whether you will be approved. Depending on the lender, personal loan interest rates can range from 3% to 36%, according to Forbes.

Of course, the higher your score, the better rates you could qualify for. And the lower your rate, the more money you will save on interest as you pay it off over time. A score of 670 or higher could give you access to a broad range of loans, but those loans might not have the very best interest rates.

Funding Limits

Your financial history and credit score will be a huge factor when it comes to what kind of money you can get. However, most personal loan amounts range from $2,000 to $35,000. Whatever amount you qualify for can be used to pay down your debt (minus any additional costs or fees, of course).

Fees for Refinancing with a Personal Loan

The most common fee you see with personal loans is an origination fee, which typically ranges from 1% to 8% of the loan amount. It is a one-time fee typically paid when you first receive your loan – though some lenders may just add the fee to your balance.

Don’t let that scare you. Even if your loan has an origination fee, it could still be a great option for refinancing your credit card debt.

If you can find a loan with a great annual percentage rate (APR), it can all but make up for the cost of the origination fee. Let’s say you have one personal loan with an origination fee of 3% and an APR of 10%, and another loan with no origination fee but an APR of 18%. In that case, the personal loan with the origination fee will likely be the best choice for refinancing.

Timeframe and Rate Changes

If you take out a personal loan to refinance your credit card balance, you’ll typically have three to five years to repay your debt in full. For borrowers who prefer to have a set time period for paying off their debt, personal loans could be the wiser choice. If you don’t, your credit card debt can drag on for many years – especially if you’re only making the minimum monthly payment.

Also, personal loans offer a fixed rate option – meaning your monthly payment stays the same over the course of your loan. Sadly, personal loans do not offer a 0% APR promotional period like some credit cards, but at least you won’t have to worry about your rates skyrocketing.

So, the bottom line is: Refinancing with a personal loan can offer predictability and certainty when it comes to tackling your credit card debt. If you want more options, read about the pros and cons a balance transfer credit card VS personal loan in our comparison of the two refinancing options. Plus, read about the difference between refinancing and debt consolidation to see which is a better fit for you. The more you know, the more confident you can be in your choices while tackling your debt head-on.