One method for eliminating high-interest debt rapidly with lower rates is through refinancing. A debt many people are saddled with includes credit cards with which they haven’t repaid the balance each month as is recommended by most financial experts to avoid the high-interest accrual.
It’s suggested that the average cardholder in America today carries roughly a $5000 balance, with most people wanting to find their way out of debt. Fortunately, refinancing options are available with the priority of reducing the monthly obligation and maintaining a healthy financial and credit profile.
When looking at refinansiering av lån or credit cards, no universal approach will work for everyone needing help with debt repayment. Everyone’s situation is unique and will require a different solution, with some requiring debt management.
This is wise for those who have repaid debt but continue returning to the same patterns.
Let’s look more in-depth at credit card refinancing and how this alone can benefit a typical household just by lowering interest rates from what is standard on most cards.
Can You Save Money By Refinancing Credit Cards
When refinancing credit cards, the aim is to reduce the high-interest debt accumulating. A few methods for refinancing this debt exist, including taking a personal loan, a balance transfer card, borrowing from a retirement fund, considering a home equity loan, and on.
The choice that works for you will depend on your credit and financial profile and outstanding debt.
You can also consider debt consolidation, which is distinct from refinancing in that it involves obtaining a lump sum loan to repay the whole of the credit card debt, leaving a single monthly repayment.
This can be a secured loan with collateral meaning you secure the funds with an asset. That can be an auto, your home, or savings. You can also choose an unsecured loan that doesn’t require collateral.
Refinancing is different in that you would transfer the debt from one high-interest card to a new card that offers a lesser interest rate albeit a large credit limit.
Does Credit Card Refinancing Damage A Credit Profile
Whether refinancing or choosing to consolidate debt, credit scores can take a short-term hit. Still, in the long-term, the profile will overall benefit from the financial decision if repayments are made consistently and on time.
When applying for a loan or another credit card, a credit score usually drops by only a couple of points. The age of credit is a factor with a credit profile as well. That means when you add a new card, this will be reduced and also decrease the score.
When applying for a consolidation loan for the high-interest debt, the lender will do a hard credit pull, another reason the score drops. When comparing lenders, it’s essential to keep inquiries within a short span, roughly “between 14 and 45 days.” It’s suggested this will count on a credit history as one inquiry.
When spread out over an extended period and showing as multiple inquiries, this can hurt the credit history and is frowned upon by lenders and credit issuers. After transferring the balance or consolidating the debt, the credit score will start to go back up after a period of regular repayments.
A balance transfer card offering more available credit will boost the score since the credit utilization will go down. Regardless of your choice, any time there are delays in repayment or more significant debt accumulations, credit will be impacted.
Refinancing Credit Card Debt
Different methods exist for refinancing credit card debt, including applying for a balance transfer card. These are still revolving credit, but the rates are lower. Other options, such as loans, also come with lower rates with the capacity to pay off the higher interest debt.
Using the loan method leaves a single fixed repayment with a set time frame to repay the balance.
It’s important to weigh the advantages against the downsides to decide which works better for your financial circumstances and will ultimately bring the most savings. Click for the available choices for refinancing credit card debt.
- A personal loan
A personal loan for debt consolidation is a way to eliminate high-interest credit card debt. Most lenders require that a borrower have excellent or good credit ranging from roughly “670 or above.”
It’s not impossible to get a loan with a lower credit score, but that will mean a higher rate and associated fee, and the goal is to reduce interest for the greatest savings.
Most personal loans are unsecured without the need for collateral. The lending process can be relatively straightforward for those considered a valued client with their bank or a credit union member.
When consolidating debt, it’s wise to prioritize the debt and not borrow more than you need. This way, you can repay the balance quickly and without delay.
- The balance transfer card
When transferring the balance of high-interest credit cards to a balance transfer card, the new interest will be set at 0 percent for a promotional period. That will mean that you have an appointed time frame to dump as much cash as possible onto the balance to get it repaid. Usually, the deadline is set close to 18 months.
A downside with this option is that often there’s a fee of approximately 5 percent of the balance transferred. You must consider whether you’ll save enough money with the 0 interest to justify using this refinancing option.
Again, when applying for this card, the issuer looks for excellent to good credit of roughly “680 or above.”
Prospective clients can apply online for a fast response. Suppose you’re unable to get approval for the 0-interest balance transfer card. In that case, it’s possible to apply for a credit card with a lower interest rate, a larger credit limit, than the cards you presently have.
You can then pay off the balances, ultimately saving money with reduced interest.
You can also use a home equity loan or retirement fund. These are options you want to use as a last consideration. A home equity loan puts your home at risk of foreclosure if you do not make the payments.
Also, closing costs with this choice have the potential to make this more expensive than the savings you might realize.
By borrowing against a retirement fund, you put your future wealth at stake. But in that same vein, not all retirement funds are at your disposal. With some 401k plans, employers prohibit borrowing.
It’s also worth considering that if you leave your employment, the money must be repaid at once, or you face taxes and penalties.
Is Credit Card Debt Refinancing Right For You
Credit card debt refinancing aims to help a client establish credit and financial health. If you didn’t save money, it wouldn’t make sense.
Suppose you’re financially stable with good to excellent credit, but the interest rates on your credit cards are significant. In that case, it’s reasonable to try to reduce these with the premise of saving.
For those struggling to meet monthly obligations with less-than-favorable credit disallowing the probability for approval of a personal loan with a low rate or a 0 percent balance transfer card, it’s wise to find ways to improve credit and possibly consider debt management.
People saddled with high-interest credit card debt want to find a way to reduce rates to save money. Several methods exist to help with that path, including refinancing credit card debt or debt consolidation.
These are comparable but distinct. Refinancing involves transferring balances to continue paying but at a lesser rate. Consolidation consists of paying off the debt with a lump sum loan leaving a fixed monthly installment to be repaid by a set term.
Whatever your choice, the result should be the greatest credit and financial health.