What is credit card refinancing?
Credit card refinancing is the process of transferring credit card debt to another lender's credit card or loan, with the goal of saving money on interest and perhaps consolidating multiple balances into one. But there is more than one way to go about refinancing credit card debt. The first is to do a balance transfer, where the debt gets moved to another credit card with a lower APR. The average 0% APR balance transfer period on a credit card is about 13 months. The other major method for credit card refinancing is to take out a loan with a lower interest rate and use that money to pay off the credit card debt. Thus, the borrower would ideally owe the same amount of money at a lower rate.
The point of credit card refinancing should be to save money on interest in order to pay off your debt faster, but it's easy to start a cycle of robbing Peter to pay Paul. You want to avoid kicking a balance from card to card since most balance transfers charge costly fees. Similarly, many personal loans charge origination fees, so it's not a good idea to take out loan after loan, either.
There are few other things to keep in mind when considering credit card refinancing, though. That's especially true if you want to get rid of the debt for good.
Here's how credit card refinancing works:
- You apply for either a balance transfer credit card or a personal loan with a lower APR than your current debt. It's a good idea to pre-qualify for a personal loan on WalletHub first. Many credit card issuers also let you pre-qualify on their websites.
- The new credit card's issuer pays off your old balance, which effectively moves what you owe to the new credit card. Or, you use the money from the personal loan to pay off the old card.
- You make monthly payments on the new, refinanced balance until it's paid off.
Other Types of Credit Card Refinancing: You can use a credit card to refinance all common types of consumer debt. For example, some credit card companies will let you pay off a car loan or mortgage with a balance transfer.
Ways to Refinance Credit Card Debt: Getting a balance transfer credit card with an introductory 0% APR is the best, most common approach. You could also use a personal loan to pay off your credit card, assuming it has a lower rate. You could even take out a home equity loan, which should have extremely low APRs but will be secured by your house.
Extra Costs: Consider more than just the APR when choosing a way to refinance credit card debt. Balance transfer credit cards usually have balance transfer fees (typically 3% - 5% of the transferred amount). And personal loans may charge an origination fee of 1% - 8% for processing.
Credit Cards for Refinancing: The average balance transfer credit card offers 0% for roughly 13 months and charges a balance transfer fee of around 2.55%.
Best Offers for Credit Card Refinancing: Chase Slate and Amex EveryDay are among the top balance transfer cards available right now. LightStream, SoFi and Avant are among the best personal loan providers.
Credit Card Refinancing Limits: Most of the balance transfer credit cards that disclose minimum starting credit limits offer at least $500. The amount you transfer, plus balance transfer fees, cannot exceed your assigned spending limit. Personal loan providers tend to have loan minimums of $1,000 or more.
Credit Score Needed: 0% credit cards for refinancing almost always require good or excellent credit for approval. To get a good personal loan without an origination fee, you'll need a score of at least 660. So make sure to check your credit score.
Required Info: Balance transfer cards require the dollar amount you want transferred and information (e.g. account number) about the account you're transferring the balance from. With personal loans, you usually pay off the old creditor yourself.
Timeline: Credit card balance transfers often need to be completed within 60 days of opening an account to get the best terms. With personal loans, you start owing interest as soon as you receive the money, which is usually less than 7 business days after you're approved.
Credit card refinancing can be a smart move for saving money on interest. But don't let it become a habit, or else you'll be shuffling debt around endlessly.
Take a look at your existing credit cards and their balances. Large balances with high APRs are typically the best ones to refinance, since you can save the most on their interest. Then figure out what monthly payments you can afford and how long you'll need to pay down the refinanced balance. A credit card calculator can be very helpful in this regard, making it clear which credit card refinancing option will best meet your needs.
In general, the best credit card for refinancing will have a $0 transfer fee and a long 0% APR intro period. The best personal loan will have a $0 origination fee and an APR significantly lower than what you're currently paying. That will help get you down the path of being debt-free for good.