5 Ways To Refinance Your Credit Cards

By Melissa Cook Reviewed by Nima Vahdat Updated Jun 04, 2024
5 Ways To Refinance Your Credit Cards

Credit card debt can become overwhelming, with high-interest rates making it difficult to pay off balances… but these strategies can help!

Based on data from the Federal Reserve, the average APR on credit cards for assessed interest has nearly doubled from 12.9 percent in late 2013 to 22.75 percent in Q4 2023. 

This marks the highest level recorded since the Federal Reserve began collecting this data in 1994.

However, despite this, inflation and rising living costs have prompted more individuals to depend on credit cards to fill the financial gap between income and expenses. Fortunately, there are ways to refinance credit card debt and alleviate financial stress.

KEY TAKEAWAYS:

  • Refinancing credit card debt can help lower interest rates, consolidate payments, and make debt more manageable.
  • Options for refinancing credit card debt include balance transfer cards, home equity loans, debt consolidation, personal loans, and borrowing from retirement accounts.
  • Before refinancing credit card debt, it’s important to consider the risks, potential impact on credit, and eligibility requirements for each option.

What Is Credit Card Refinancing?

Credit cards serve as valuable tools for earning rewards such as cash back or travel miles, offering emergency funds, and establishing credit history for future purchases like vehicles or homes. 

However, unforeseen circumstances can lead to accumulating balances across multiple credit cards.

Credit card refinancing involves taking out a new loan or credit card to pay off existing credit card debt. The goal is to secure better terms, such as lower interest rates or a more manageable repayment schedule, to reduce the overall cost of debt.

When To Refinance Credit Card Debt

Refinancing credit card debt may be a good option if you’re struggling to keep up with high-interest payments, have multiple credit cards with balances, or want to simplify your finances by consolidating debt into a single payment.

This approach is most effective for individuals who have maintained a solid credit score and can be highly beneficial when combined with improved financial habits.

Risks Of Refinancing Credit Card Debt

While refinancing credit card debt can offer benefits, it’s important to be aware of potential risks, such as…

Taking on New Debt: Refinancing credit card debt may lead to accumulating new debt without addressing underlying spending habits, worsening the financial situation.

Extending Repayment Terms: While refinancing can lower monthly payments, it often extends repayment terms, resulting in higher overall interest costs over time.

Short Promotional Period: The 0 percent introductory rate typically expires after 12 to 18 months. Also, not everyone qualifies; a credit score of at least 670 is typically required for a 0% interest rate, and a score of at least 700 is often necessary for a longer introductory term.

Paying Additional Fees or Interest: Refinancing options may incur extra fees or higher interest rates, potentially increasing the total debt expense.

Impact on Credit Score: Refinancing can temporarily lower credit scores due to hard inquiries and alter credit utilization ratios, affecting creditworthiness.

Potential for Default: Without addressing financial issues, individuals may still struggle with payments, increasing the risk of default and further financial distress.

5 Ways To Refinance Credit Cards With Their Pros And Cons

Balance Transfer Cards 

Balance transfer cards allow you to transfer high-interest credit card balances to a new card with a lower promotional interest rate. 

If you’re eligible for a card with a 0% introductory balance transfer APR, you can cut down on interest costs. Throughout this period (typically 15 to 21 months), you can focus on reducing your existing credit card debt without accumulating more interest. 

Pros:

⦁ Lower Interest Rates – Save money with promotional rates. 

⦁ Consolidated Payments – Simplify payments by combining balances.

Cons:

⦁ Balance Transfer Fees (1-5 percent of the balance owed) – Offset savings with transfer fees. 

⦁ Risk of Higher Rates – Post-promotion rates may rise significantly.

Home Equity Loan 

If you’re a homeowner, a home equity loan allows you to borrow against the equity in your home to pay off credit card debt. 

Typically offered by banks and online lenders, home equity loans provide a lump-sum loan that is capped at 80 percent of the value of your equity. 

Due to the collateral involved, these loans pose less risk for lenders, enabling them to offer lower interest rates compared to unsecured loans. 

Repayment terms for these loans are typically long, resulting in lower monthly payments. Additionally, some home equity loans only require interest payments during the initial draw period, typically lasting 10 years. 

The application process involves a thorough examination of your finances and may include closing costs.

Pros:

⦁ Lower Interest Rates – Enjoy lower rates than credit cards. 

⦁ Potential Tax Benefits – Some interest may be tax-deductible.

Cons:

⦁ Risk of Home Loss – Default may lead to home loss. 

⦁ Closing Costs – Fees like appraisals and origination apply.

Debt Consolidation 

Debt consolidation involves combining multiple debts into a single loan with a lower interest rate or more favorable terms. 

Credit card consolidation loans are fixed-rate loans, typically ranging from $1,000 to $50,000, disbursed in a lump sum, and with terms extending up to 7 years.

Consolidating your credit card debt with a lower-rate loan can result in substantial interest savings over time. 

Additionally, managing one monthly payment is often more convenient than juggling multiple payments each month.

Pros:

⦁ Lower Interest Rates – Save on interest compared to cards. 

⦁ Simplified Payments – Manage debt better with one payment.

Cons:

⦁ Eligibility Requirements – Good credit and income may be needed. 

⦁ Extended Repayment Terms – Longer terms may mean more interest.

Unsecured Personal Loans 

Personal loans come in two main types: secured and unsecured. 

Unsecured loans don’t require collateral, like home equity or a vehicle, and are repaid through regular monthly installments.

Unsecured personal loans from your local bank or credit union can be used to refinance credit card debt and may offer lower interest rates and fixed repayment terms, typically ranging from 1-7 years. 

Additionally, certain financial institutions may facilitate direct payments to your creditors, simplifying the process and saving you time and effort.

When considering using a personal loan for credit card debt refinancing, it’s essential to compare the loan’s interest rate with your existing debt’s rate. 

While personal loan interest rates may be relatively high, they could be lower than your current credit card APR.

Pros:

⦁ Lower Interest Rates – Typically cheaper than cards. 

⦁ Fixed Repayment Terms – Budget with consistent payments.

Cons:

⦁ Higher Rates for Poor Credit – Poor credit may mean higher rates. 

⦁ Origination Fees – Fees may increase borrowing costs.

Borrowing From Your 401(k)

While we generally advise against withdrawing funds from retirement savings except in the most urgent circumstances, borrowing from your employer-sponsored 401(k) allows you to access funds to pay off credit card debt. 

A 401(k) is a tax-advantaged retirement investment account funded through pre-tax deductions from your paycheck. 

401(k) loans typically offer single-digit interest rates, making them significantly cheaper than credit cards, and any interest paid contributes to your account balance.

The maximum amount you can borrow from a 401(k) loan is either the greater of $10,000 or 50 percent of your vested balance, or $50,000, whichever is lower.

Pros:

⦁ Avoid Credit Checks – No credit checks needed. 

⦁ Potentially Lower Rates – Enjoy lower rates than cards.

Cons:

⦁ Tied to your Job – You may have to quickly repay your loan if you’re fired or laid off.

⦁ Penalties & fees – You’ll be penalized for late payments.

⦁ Risk of Depleting Savings – Reduces retirement savings.

What To Consider Before Refinancing Your Credit Card Debt

Before refinancing credit card debt, consider factors such as…

Interest Rates: Compare the interest rates offered by different refinancing options to ensure you’re getting a lower rate than your current credit cards.

Fees: Consider any fees associated with refinancing, such as balance transfer fees or origination fees, and factor them into your cost analysis.

Repayment Terms: Review the repayment terms of the refinancing option, including the length of the repayment period and whether it offers fixed or variable interest rates.

Eligibility Requirements: Determine if you meet the eligibility requirements for the refinancing option, such as credit score, income level, and debt-to-income ratio.

Impact on Credit Score: Understand how refinancing your credit card debt may affect your credit score, both in the short term and long term, and consider any potential consequences.

Comparison: Carefully compare all available refinancing options to find the best solution that aligns with your financial goals and needs.

Does Refinancing Credit Cards Hurt Your Credit?

Refinancing credit cards can impact your credit score in the short-term, depending on factors such as credit inquiries, new accounts, and credit utilization. 

However, responsible management of refinanced debt can help improve your credit over time.

Tips For Getting A Good Refinancing Deal

To get a good refinancing deal, you should do the following…

Shop Around: Explore multiple lenders to find competitive rates and terms for refinancing your credit card debt.

Compare Terms and Fees: Analyze the terms and fees associated with each refinancing option to ensure you’re getting the most favorable deal.

Improve Your Credit Score: Work on improving your credit score before applying for refinancing, as a higher score can qualify you for better interest rates and terms.

Consider Reputable Lenders: Choose a reputable lender or financial advisor with a track record of providing reliable and transparent services to ensure you’re working with a trustworthy partner.

Final Thoughts On How To Refinance Credit Cards

Refinancing credit card debt can offer relief from high-interest rates and make debt more manageable. 

By exploring different options and carefully weighing the pros and cons, you can find a refinancing solution that fits your needs and helps you achieve financial freedom.

If you’re struggling with credit card debt and feeling overwhelmed by high-interest payments, we can help.

At Americor, we understand the importance of managing your finances wisely. 

As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a free consultation call with one of our certified Debt Consultants, who can provide personalized advice tailored to your specific needs.

By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future. 

Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!


melissacook

Melissa Cook

Melissa has a degree in English and marketing from University of California Irvine. She is a creative and accomplished content writer and editor with comprehensive experience developing rich, compelling content for a variety of websites. With her expertise in writing a broad range of content, combined with outstanding interpersonal skills and commitment to exploring innovative ideas, Melissa has done an excellent job developing content for blogs, articles, social media, and the company website. When she is not writing, Melissa spends most of her time cooking, traveling the world, and catching her favorite Broadway shows.