Credit Cards

Credit Card Consolidation and Refinancing Explained

For most people, credit cards are a must-have. They can help you shop online, earn rewards points and even build your credit history. That piece of plastic can be a wonderful thing.

They can also drag you deep into debt.

Ideally, we’d all pay off our credit cards every month. In practice, it doesn’t always work that way. Surprises happen to even the most responsible people, whether it’s an oversized medical bill or sudden layoff.

If you have a high-interest credit card and find yourself struggling with minimum payments and rising debt, you may want to consider one of two popular solutions: credit card refinancing or credit card consolidation.

Here’s how each option works, so you can choose the best way to move forward.

What is credit card refinancing?

Staring down a mountain of debt on your credit card? It wouldn’t be so hard to pay off if it wasn’t for the high interest rate fighting you along the way. That’s where balance transfer credit cards come in.

Credit card refinancing is simply moving your balance from one card to another so you can take advantage of lower interest rates.

In the best-case scenario, the new card would come with a 0% interest rate for a promotional period. Often, these introductory rates last between 12 and 21 months, giving you time to pay down your debt, before switching back to a regular rate.


  • 0% interest: If you meet the criteria, shop around for a card that will completely free you from interest while you wrestle with your debt.
  • Better permanent rates: Even if you can’t take advantage of 0% interest, you might still find a balance transfer card with a lower, lasting rate. You’ll still be fighting uphill, but it won’t be as steep.
  • Quick and convenient: The application process for credit card refinancing can be much faster than getting a personal loan. You’ll likely get a decision within minutes.


  • The 0% interest ends: Nothing lasts forever, including that wonderful introductory rate. Before you refinance, find out whether the regular rate is actually higher than what you’re currently paying.
  • Variable rates: A balance transfer credit card is still a credit card, meaning it could have a variable rate. Your 13.99% APR could jump to 23.99% in the future.
  • Transfer fees: While it’s exciting to transfer your balance to a new card, you might miss the transfer fee that comes with it. The fee is generally 3% to 5% of the balance you’re transferring.
  • Limitations: Depending on your credit score or debt, you may not be able to take advantage of the best balance transfer credit cards. A poor credit score may limit you from a 0% APR card, while the new card’s credit limit may not be high enough if you’ve accrued a lot of debt.

What is debt consolidation?

If you’re juggling debt on multiple credit cards, you might consider a consolidation loan. To consolidate, you pay off several credit card balances by taking out a single personal loan.

A personal loan is generally paid out in a lump sum from the lender with a fixed rate and term. That means the interest rate won’t change for the duration of the loan, and you will have the same monthly payment until the loan is fully repaid.

You can get matched with a debt consolidation loan through Credible, a service that works with many lenders at once. Based on your credit score, you could get matched with a loan of up to $100,000, with a fixed interest rate between 3.49% and 35.99% interest.


  • Set plan: Because personal loans carry a fixed term, you’re forced to commit to a plan to fully pay off your debt, typically in two to five years.
  • One bill: Consolidating your debts means you only have one monthly payment to worry about.
  • Lower interest rates: You will likely get a better rate on a personal loan than you would on a credit card, saving you money in interest. It’s also normally a fixed rate, so it will never go up.
  • Low fees: While some lenders offer no-fee debt consolidation, others have minimal costs, like a one-time “origination” fee of up to 5%.


  • Credit score: Lenders are unlikely to approve unsecured loans unless you have a decent credit score, which may disqualify many people from taking advantage. If you don’t know your score, you can check it for free online.
  • Application process: Personal loans require a more involved application. Lenders will want not just your credit score but also documentation about income, debts and financial assets.
  • No lower payments: Your fixed monthly repayment will never decrease, even as you pay down a majority of the balance.

How to choose the right option

Deciding between these two options depends on your current situation and future goals.

If you’re just looking to lower the interest rate on your credit card, refinancing is likely the best option — especially if you think you can pay off your debts during a 0% interest promotional period. And even if you don’t qualify for zero interest, you can still try to switch to a card with a lower APR to save money.

If you’re looking to pay off your credit card debt completely — and can’t imagine doing so during the grace period of a balance transfer credit card — then a debt consolidation loan is probably a better option. With a fixed term, you can create a plan to pay off your entire debt within five years.

Both options offer the possibility of lower interest. But as you weigh your options, don’t forget to crunch all of the numbers and ensure fees don’t stand in the way of debt freedom.

Source: Moneywise / Featured image by wayhomestudio –

Joseph Tanner

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