Here’s some good news if you’ve been struggling to pay off that mountain of credit card debt.
Instead of worrying about staying on top of those ever-increasing monthly payments, you can refinance your credit card debt to help you pay it off faster and save thousands in interest.
What are your credit card debt refinancing options?
There are two main debt refinancing options, each with its own set of options to choose from. You can consolidate your credit card debt by transferring balances onto a new credit card — called a balance transfer credit card — or you can take out one of several credit card refinancing loans.
Balance transfer credit cards are specially designed credit cards that offer introductory 0 percent or low interest rate promotions to help you pay off credit card debt faster by keeping high interest at bay.
Credit card refinancing loans help you combine your credit card debt in one simple monthly payment. Personal loans are the most common and easiest to get, and are available through credit unions, banks and online vendors. Also available are home equity loans and 401(k) loans.
Balance transfer vs. refinancing loan: Which is better for paying off credit cards?
One isn’t objectively better than the other, but understanding the pros and cons of each should help you choose the best credit card debt refinancing option for you.
Balance transfer credit cards
Far and away the biggest upside to getting a balance transfer credit card is taking advantage of its introductory 0 percent or low interest promotional offer. These promos can help you save thousands of dollars in interest.
However, APRs tend to skyrocket after these promo periods end. Another advantage is that these credit cards are easy to apply for and you can apply online. But they aren’t free—most require a balance transfer fee, usually 3 to 5 percent of the total balance amount.
Consider the following before committing to a balance transfer credit card: Make sure you can pay off your balance before the promo period ends, and check that the balance transfer fee doesn’t equal or exceed the amount of interest you’d be saving on the promotion.
Refinancing loans
The biggest upside to refinancing loans? Fixed payment terms. These fixed monthly payments, APRs, and payment periods can help you manage your finances by making them more predictable while you avoid paying more in increasing interest.
However, there are origination fees—usually 1 to 6 percent of the loan amount—and application processes are much more involved than they are for balance transfers.
Refinancing loans are ideal for credit card holders who have so much high-interest debt that there’s no way they’d be able to pay it all off with a balance transfer before the promo period ends.
Since credit history determines loan terms and borrower candidacy, this debt refinancing option is usually better for credit card holders with good credit history.
The bottom line
Is it smart to refinance your credit card debt? Absolutely. But before choosing the best refinancing option, you need to assess your debt situation:
- What is your overall debt?
- How much are you paying in interest?
- How long do you think you’ll need to pay it off?
- Do you have a good credit history?
At the end of the day, you may want to talk to someone at your local credit union or bank, or ask a personal financial advisor to help you decide the best credit card refinancing options.
