Credit Card Refinancing vs Debt Consolidation: Key Differences

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Oct 27, 2024

Credit Card Refinancing vs Debt Consolidation: Key Differences

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Is credit card debt weighing you down? Then, you must look for solutions for financial relief and consider what your options are. We are here to help!

There are two standard solutions: credit card refinancing and debt consolidation. Both can help you better manage your debt, but they are different in terms of stability and flexibility.

To help you make an informed choice, it is important to understand the key differences, what each can do for you, and their pros and cons — just read ahead.

In this article

What is credit card refinancing?

Credit card refinancing is the process of transferring the balance of one or more credit cards to a new credit card. It is a great way for consumers with excellent credit scores to lower the interest rate to zero, albeit only for a limited period (after that, higher interest rates might apply).

To make this work, you must have a credit score that is high enough to qualify for a 0% interest card. If so, you can apply for a credit card with a zero-interest balance transfer option and a big credit limit.

You will not be charged interest on the balance during the promotional period, which usually lasts 12–18 months. Following that, the interest rate rises to its standard rate, which usually ranges between 16% and 20%.

Pros of credit card refinancing

If the card has a credit limit that is high enough to cover all your other credit card debts, you certainly save money.
With a 0% interest rate, you won't be charged any interest on your balance during the promotional period.
It's fairly easy to apply for refinancing, and you get a quick response.
If you can reduce your use of credit cards, you could totally eliminate your debt.

Cons of credit card refinancing

To get a 0% interest rate, you must have a good credit score — which is anything upwards of 670.
The 0% rate has a deadline, usually expiring in 12–18 months. If you don't pay it off by then, you will face an interest rate of 16%–20%.
There likely will be fees of 3%–5% of the balance transferred. These will be added to the amount owed.
If you make a late payment on the card or exceed your credit limit, you could face penalties and lose the 0% introductory rate.

What is debt consolidation?

Debt consolidation is the process of combining multiple loans and/or debts into one loan. For credit cards, debt consolidation means taking out a low-interest loan to settle your debt. That will involve transferring multiple credit card balances to a single loan.

These loans offer fixed monthly payments and interest rates. The loan will typically last 2–5 years, after which you will have to repay it.

Debt consolidation is helpful if you have plenty of home equity, a good credit score, and a constant income.

Pros of debt consolidation

Most personal loans have a fixed interest rate, meaning your rates will stay the same for the duration of the loan.
Most personal loans tend to have lower interest rates than credit cards.
You'll pay the same monthly amount for the duration of the loan. A fixed monthly payment makes budgeting easier.

Cons of debt consolidation

Some home equity loans use property as collateral; foreclosure is at stake if payments are missed.
There is a possibility that loan origination fees and other costs add up.
Lower monthly payments might stretch out your loan term, which means you'll end up paying more in interest over the long run.

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What are the key differences between credit card refinancing and debt consolidation?

Credit card refinancing and debt consolidation share the same goal — reducing the debt owed. Yet, there are vital differences between achieving that: stability vs. flexibility and the length of time required to pay off your debt.

Credit card refinancing offers more flexibility, such as options for a 0% initial offer and no fixed monthly payment.

In contrast, debt consolidation provides a more specific framework for your loan. With a fixed interest rate and payment term, debt consolidation also allows for a lower overall interest rate than credit cards.

So, if you need more stability, time, or planning to pay off your loan, choosing one of the best debt consolidation loans might be your best option.

Debt Management Simplified

Millions struggle with debt. We help them move on with their lives.

End your debt stress with a proven, affordable debt relief program. Our consultants will guide you through every step.
Everyone’s financial situation is different. That’s why we start by giving you a free debt analysis and create a custom solution based on your unique needs and goals.
Let us help you solve your debt problems and move forward with improving your overall financial health.

Not available in CO, HI, ND, OR, RI, VT, WA, WV, WY, MN, DE, IA.

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Key questions to ask before choosing between credit card refinancing and debt consolidation

Ask yourself these questions before deciding whether to consolidate your credit card debt or refinance:

How much do I owe? Knowing the total amount of your debt will help you determine if consolidating or refinancing makes sense financially.
What are my interest rates? Find out whether you are dealing with high-interest credit card debt, or if your rates are relatively low. This can impact which option will save you more money.
What is my credit score? The better your credit score, the lower the interest rates are on loans, so familiarize yourself with the rules of calculating your credit score before deciding.
How quickly do I want to be debt-free? Are you looking to get out of debt quickly, or is your priority to lower your monthly payments?
What are the fees and terms? Find out if there are any hidden fees for consolidating or refinancing. Make sure you understand all the terms before committing.

However, if you are in the apparently no-way-out situation of owing a lot of money, have a low credit score, or your finances are not in order for either credit card refinancing or debt consolidation, consider talking to your attorney, credit counselor, or tax advisor. They can help you create a budget as well as help you form a strategy for eliminating credit card debt.

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