How Credit Card Refinancing is Different from Debt Consolidation

Credit card debt consolidation

Credit card refinancing & debt consolidation are terms often used interchangeably. They’re both processes that serve a similar purpose- dealing with debts that spin out of control. However, these processes are fundamentally different, and understanding their basic differences is important if you were to decide which one is right for you.

What is credit card refinancing?

It refers to transferring your credit card balance from a high-interest card to a new card with a more favorable pricing structure. This process is also popularly known as a balance transfer. The primary goal here is to lower the interest rate so that repayment becomes easier.

Also Read: Refinance Credit Cards – Repay Faster

What is debt consolidation?

This refers to the process of taking a loan to pay off multiple debts in order to convert several loan payments into one monthly payment. This is done to make the debt more manageable by combining all payments into one.

Both credit card refinancing and debt consolidation are intended to help lower the interest rates, making the debt more manageable, and debt repayment much easier. Although the outcomes of both these methods are similar, there are some significant differences in the benefits they offer:

Benefits of credit card refinancing

  1. Several lenders offer for 0% interest on balance transfers for a specific period of time. Although temporary, this option allows you to save a considerable amount of interest expense during the interest-free period.
  2. Since credit cards are typically revolving arrangements, any balance that you pay off can be accessed once again as a new source of credit.
  3. The application process for credit card refinancing is relatively simpler.

Benefits of Debt Consolidation

  1. Managing a single loan becomes easier than juggling multiple loans. This would mean one monthly payment, one set of statements, and just one lender to deal with.
  2. Unlike credit card refinancing, debt consolidation is a definite means to become debt-free as it comes with a fixed repayment schedule.
  3. Paying off debt using debt consolidation helps you maintain your credit score and prevents it from dropping any further. With regular payments, the score eventually improves in the long run.
Also Read: Settle Credit Card Debts in 4 Simple Steps

Dealing with debts can be emotionally taxing, making it impossible to lead a normal life. Both credit card refinancing and debt consolidation is great ways to handle such debts. But before you opt for one, understand that they are similar but not the same. They’re meant to serve different needs. So, whichever you go for, make sure it’s a smart money move for you.