The average American has $5,805 in credit card debt, according to 2022 data from TransUnion.
If you’re looking to pay down high-interest credit card debt, credit card refinancing may help save you money on interest and speed up the process. With this strategy, you move your credit card balances to a new card with a lower rate.
Before you decide on this option, it’s important to understand the pros and cons.
With credit card refinancing, you apply for a new credit card — ideally with a 0% introductory rate — and transfer your existing balances to it. Introductory periods are required to last a minimum of six months, and can be up to 21 months or more. This way, you have the opportunity to repay your credit card debt with no interest.
However, when the introductory period ends, the credit card will return to its usual rate, which may be higher than what you were paying on your other cards. Additionally, some of these credit cards have a balance transfer fee that’s either a flat rate or a percentage of the total balance. Before transferring your balances to a new card, do the math to ensure that this option is worth it.
Credit card refinancing offers the following benefits:
Credit card refinancing may not be the best solution for everyone. Here are some cons to consider:
Credit card refinancing is just one way to simplify your credit card debt. You may also want to consider credit card consolidation. With this option, you take out a personal loan with a lower interest rate to repay your credit card debt. You then pay off the new lender in monthly installments. Online lenders, banks, and credit unions offer credit card consolidation loans. However, you’ll need to have good credit to qualify for a low interest rate. A good credit score ranges from 670 to 739, according to the FICO scoring model.
| Example: If you have a credit card balance of $8,500 with a 17.99% interest rate, and it takes you 36 months to pay off this debt, you’ll spend $2,561 on interest alone. If you take out a credit card consolidation loan for $8,500 at a 6.99% interest rate and the same loan term, you’ll only pay $947 in interest. This means you’d save around $1,614 with credit card consolidation. |
Related: Learn more about getting a personal loan on Credible.com
Credit card refinancing may be a good idea if:
That said, you may not want to consider credit card refinancing if:
Credit card refinancing isn’t the only way to tackle high-interest credit card balances. Here are a few other options to consider:
Related: Learn more about getting a personal loan on Credible.com