Credit Card Refinancing: Reduce Interest & Accelerate Debt Payoff

Dealing with a bunch of credit card debt? You're not alone. In fact, according to the most recent report from the Federal Reserve, Americans have a combined total of $963.6 billion in revolving credit, most of which is consumer credit card debt. If you're part of this statistic, now could be a good time to figure out how to refinance your credit card debt so you can become debt-free faster.

No matter if you’re tackling a huge chunk of debt for the first time, figuring out how to pay off debt is a sound choice. After all, being able to manage your financial situation well is going to help you feel less stressed and better equipped to reach other goals, like saving for a house or putting money into retirement funds.

It can seem overwhelming at first, but learning the best way to refinance credit card debt is just a matter of picking the right strategy for you. Here are some ways you can refinance your debt and determine which strategy is best suited for your situation.

In this article

• What is credit card refinancing?
• Options for refinancing credit card debt
• Use a balance transfer credit card
• Consider a personal loan
• Use your home equity
• Use a specialized credit card debt service
• Borrow money from your 401(k)
• Consider a debt management plan
• How to pay off credit card debt faster
• Is refinancing credit card debt a good idea for you?

What is credit card refinancing?

Credit card refinancing can be accomplished a few different ways, but typically it involves you transferring outstanding credit card debt to another type of loan or to a new credit card from a different credit card company. Credit card refinancing can be especially helpful if you're paying a high interest rate right now, due to taking out cash advances or having a poor credit score.

Typically, you’ll transfer a balance from a card with a high interest rate to another credit card or other loan that offers a lower interest rate. For example, if the APR with your current card is 22% and you decide to transfer the balance to another credit card with a 16% APR. In this case, you’re saving yourself 6%. The goal of credit card refinancing is to save money on interest charges so that you can make larger payments toward the principal amount of money you owe. Being able to put extra money toward your debt means you could get out of debt faster.

Debt consolidation is another term that’s similar to credit card refinancing. In this case, you’re taking several loans — or several credit card accounts — and moving them to another type of loan. In the process, you can combine multiple debts into one loan or line of credit. That way, you’ll be making only one monthly payment and you would be able to pay your debt faster. This strategy assumes you can get a more favorable interest rate on the new loan as well.

Options for refinancing credit card debt

As for how to refinance credit card debt, there are several different ways to do it:

• Use a balance transfer credit card
• Consider a personal loan
• Use your home equity
• Borrow money from your 401(k)
• Work with a credit counselor

All of these options can work, but you’ll want to consider things like your credit score and credit history, how much cash you have on hand, your income, and your overall debt load. You also want to consider how motivated you are to pay off debt as fast as you can or if you need some help and would be better off with a slower plan with lower monthly payments.

Each of these options has both advantages and disadvantages. Let’s explore all of them so you can decide which approach to refinancing credit card debt is best for you and your situation.

Use a balance transfer credit card

Consider a balance transfer if you feel you can trust yourself to get a new credit card and not spend more money on it. Ideally, you want to find a card with an introductory 0% APR. These types of cards offer a period of time where you won’t be charged interest. Some of the best balance transfer cards offer over a year of time at the intro APR.

To use a balance transfer, most credit card issuers require you to have a decent credit score to qualify for an introductory APR. And as long as you pay off the balance during the introductory period, you could save boatloads of cash in interest. Otherwise, the money you still owe will be subject to the regular APR once that intro period is over.

There may also be a time frame for when you can qualify for the 0% APR. For example, a card may have the stipulation that you as the cardholder need to make a balance transfer within 45 days of account opening to qualify for the 0% APR. Make sure to check the fine print when deciding on a new credit card so you’re well within the requirements to get the introductory APR offer.

And even if you don’t qualify for a 0% APR credit card, it’s still possible to refinance credit card debt by finding a card with a lower APR. Even if it’s a few percent lower, it could save you a lot of money over time.

Keep in mind many card issuers charge a balance transfer fee, which is usually around 3%. Some cards also charge an annual fee, so you’ll want to figure out if it’s worth it to fork over the cash before you apply for the card and pay the transfer fee.

This method is best for those who have a small amount of debt and can pay it off within a year or so. That’s because you’re limited in how much you can transfer over, which is typically up to your new credit limit. If you can't move all your credit card debt, you can still try to move the debt you are paying the highest interest rate on. Every bit of interest you can knock off your debt can save you in the long run and get you to debt-free status quicker.

Pros Cons

• No need to pay interest if you qualify for intro 0% APR

• Transfer amounts can’t be higher than available credit limit
• Typically has a balance transfer fee
• You may not qualify if you have a low credit score

To find the best credit card for you, check out our list of the best balance transfer cards. Be sure to take note of the recommended credit score needed to qualify.

Earn Cash Back Twice

Citi Double Cash Card

Citi Double Cash Card

Learn How to Apply

Annual Fee

$0

Rewards Rate

up to 2% cash back

Benefits and Drawbacks

Benefits

• 0% intro APR on balance transfers for 18 months
• 2% cash back on all purchases - 1% when you buy and 1% when you pay
• No annual fee

Drawbacks

• Foreign transaction fee
• No sign-up bonus

Card Details

• Earn cash back twice: 1% when you buy + 1% when you pay
• up to 2% cash back on all purchases: 1% as you buy and 1% as you pay
• Intro balance transfer 0% offer: 0% for 18 months then 13.99% to 23.99% (variable)

Consider a personal loan

A personal loan gives the opportunity to borrow a certain amount of money so you can consolidate your credit card debt. These types of debt consolidation loans typically offer a lower interest rate than your credit card. However, you’ll likely need to have excellent credit to qualify for the best rates. Some lenders also charge borrowers what’s known as an origination fee, which you’ll need to pay for the privilege of taking out a personal loan.

Using a personal loan for debt consolidation can help you manage payments since you’re only making one payment instead of multiple ones. If you have a lot of credit card debt, this is a great option as it’ll keep you more organized and paying at a lower rate. Since most personal loans allow you to borrow more, it’s best if you have a large amount of debt to pay off.

If you plan on paying off your debt in less than five years, a personal loan may not be the best choice. You may be better off using a balance transfer or making higher monthly credit card payments. That’s because you may pay more for a personal loan if your lender charges an origination fee plus an interest rate. By sticking with your credit cards you also avoid taking a hit from a hard inquiry to your credit report.

Pros Cons

• You’ll have a longer time to pay off debt
• Rates may be lower than a credit card

• Some lenders may charge an origination fee
• Lowest rates reserved for those with excellent credit

You can find some of the best personal loans and rates online, at your local credit union, or at a bank. Look at your monthly payments to make sure you can afford them.