Which Type of Credit Card Refinancing is Right for You?

Types of Credit Card Refinancing

Managing credit card debt can be quite an ordeal. While credit cards are a convenient form of payment, this convenience also comes with a certain amount of risk. Interest rates on credit cards can often be very high. And failure to make timely payments can lead to high balances, which make them much harder to pay off. In other words, missing credit card payments can quickly trap you in a vicious cycle of debt. According to the Federal Reserve Bank of New York, the first quarter of 2019 saw delinquency rates hit a seven-year high. This means that more credit card users are struggling to make minimum payments. As a result, they are amassing huge amounts of debt. Credit card refinancing is one option to free yourself from the unending cycle of debt.  

What is Credit Card Refinancing?

Credit card refinancing is the process of combining multiple credit card debts into one. Credit cards are often refinanced in order to save money on interest and make repayment easier. However, there is more than one way to refinance your credit card debt.  

3 Types of Credit Card Refinancing

  • Balance Transfer- This refers to moving the balance from one or multiple credit cards into a new card with a lower interest rate. Many credit card companies offer an introductory 0% APR with the aim to bring in new customers. These introductory rates are only temporary and last for a period of 12-24 months. However, this period will enable you to save money which you would otherwise pay in interest. Balance transfers are most beneficial when you have balances on multiple cards with high-interest rates.
  • Debt Consolidation- Another popular method of refinancing credit cards is debt consolidation. This refers to taking out a loan to pay off multiple credit card debts. One major convenience of debt consolidation is that debts are combined into a single, monthly payment. Another main advantage of debt consolidation is that the new loan usually comes at a lower, fixed interest rate which does not change throughout the term. Debt consolidation loans are easier to get when you have a good credit score. This may be the best option if you have a credit score that is high enough to secure a loan at a low-interest rate.
  • Non-Profit Debt Consolidation- Another option is working with an agency that helps you get out of debt without having to take a loan. These agencies do not work for profits or commissions. They help you find debt relief based on your personal circumstances by negotiating with the credit card companies. These agencies may recommend a debt management program for you, or request the credit card company to lower your interest rates. Although this may not be the best way to get out of debt quickly, it is a viable option for those with a low credit score. Non-profit debt consolidation is your last resort when every other door has closed.

So which of these options is right for you? That would depend on how much debt you have, how your credit history has been, and your credit score. While there’s no one-size-fits-all solution to credit card refinancing, remember that the ultimate goal is the same- to pay off your debts. And this goal should guide you in making the right choice.