Credit card refinancing moves high credit card balances from one or more credit cards to a credit card with a lower interest rate or a personal loan. The effectiveness of this strategy for getting out of debt depends on the consumer’s individual circumstances.
What Does Credit Card Refinancing Mean?
Consumers who seek to refinance their credit card debt typically do so in an effort to pay less interest over time. For example, someone with an $8,000 balance on a credit card that charges a 22.5% annual percentage rate (APR) transfers the balance over to one that only charges 10.5% APR. If the same balance of $8,000 were transferred over to a credit card with a 0% APR introductory rate for 18 months, they would save $1,800 in interest payments over the first year.
How Does Credit Card Refinancing Differ from Debt Consolidation?
When deciding between credit card refinancing vs. debt consolidation, it is important to consider the meaning of credit card refinancing. Credit card refinancing is the transfer of typically one or more credit card balances to another credit card or a personal loan with a lower interest rate. Debt consolidation is the transfer of multiple credit card balances as well as other financial obligations such as medical debt or other loans into a single loan with one easy payment.
What Does Debt Consolidation Mean?
Debt consolidation is a simple concept that benefits those carrying balances on multiple credit cards as well as other loan obligations. With debt consolidation, all of a borrower’s credit card balances and loan obligations are absorbed into one loan. Instead of making multiple monthly payments at varying interest rates, debt consolidation requires borrowers to make one monthly payment at a potentially lower interest rate.
Ways to Refinance Credit Cards
For those looking to pay off credit card debt, there are several options for refinancing credit cards. Each option comes with a set of risks and benefits. When developing a plan for paying off credit card debt, here are a few options to consider.
Credit Card Balance Transfer
With a credit card balance transfer, borrowers can transfer high credit card balances to another credit card with a lower interest rate. Some credit card companies offer introductory balance transfer interest rates of 0% APR for a set time period, usually twelve to eighteen months. A credit card balance transfer usually requires a borrower to open a new credit card account or use an existing credit card with a lower statement balance.
Personal Loan for Credit Card Refinancing
For qualified applicants, a personal loan enables borrowers to pay off balances on multiple credit cards as well as other financial obligations. Someone looking to pay off credit card debt will find personal loans offered by funding sources ranging from banks to online lenders. Personal loans could have interest rates lower than most credit cards and offer repayment terms of up to several years.
Borrow Money from a Retirement Account
Borrowing money from a retirement account such as a 401k or an IRA is another way to pay off credit card balances. There is no credit check required for someone to take money out of their own retirement account. When borrowing from a retirement account, you’re essentially borrowing from yourself.
Those looking to borrow from a retirement account must understand that they are also reducing the amount of money in their retirement accounts. According to Investopedia.com, borrowers younger than 59 ½ must also pay an early withdrawal penalty. Also, individuals borrowing from a retirement account are only permitted to borrow up to 50% of the account balance (up to $50,000).
Using a Home Equity Line of Credit (HELOC)
Borrowers looking to pay off credit card debt also have the option of borrowing against their home equity. A home equity line of credit or HELOC is a loan that functions as a line of credit for a set amount. These loans have much lower interest rates than most credit cards. The collateral that a HELOC is secured by is the borrower’s home. Using a HELOC puts the borrower’s home at risk should they default on the loan.
Should You Consolidate Credit Card Debt?
Are you wondering if now is the right time to refinance your credit cards? Here are some of the signs that suggest it may be time to refinance your credit cards:
- You’re finding it increasingly difficult to keep track of your credit card payment due dates.
- You haven’t been paying your statement balances in full, and now you’re paying towards the interest on the unpaid balance of your credit cards and not the principal.
- You’re making multiple payments towards several credit cards with varying interest rates each month.
- You are feeling overwhelmed by credit card debt and can’t seem to get out of it.
- You simply want to pay off all of your credit card debt.
When You’re Ready to Refinance Credit Cards
Now that you know the meaning of credit card refinancing and understand the difference between refinancing and debt consolidation, you are ready to take the next step in refinancing your credit cards. Before deciding which loans are the best loans for credit card refinancing, it is important to do your homework and compare the rates that each loan offers. When determining the best place to get a credit card refinancing loan, not doing enough research could be as costly as paying thousands extra in interest each year.
Best Egg Loans Make Refinancing Simple
Best Egg offers credit card refinancing loans with a fixed annual percentage rate (APR) of 5.99% to 29.99% (subject to credit approval). Research your options and check your rate on our website without affecting your credit score. Applying for a Best Egg personal loan to refinance your credit cards is easy. Once approved, your money could be deposited into your bank account in as little as one day. Refinance with a Best Egg personal loan and get back to enjoying life!