Credit card debt is a problem for millions of Americans (about 189 million, to be exact). And for many, it is difficult to get out of it.
With an average balance of $8,398 per household, credit card debt can pose a growing challenge. Making minimum payments can keep you afloat, but as interest mounts, tackling that debt â and eventually getting out of it â starts to seem harder than ever.
Credit card refinancing vs debt consolidation
If you’re dealing with high credit card debt, there are two strategies that can help: credit card refinancing and debt consolidation.
Credit card refinancing
“‘Credit card refinance’ is a fancy way of saying ‘balance transfer offer,'” said Howard Dvorkin, CPA and president of Debt.com.
Simply put, it’s when you use a new card – one with a low or 0% interest rate for six to 18 months – to pay off the balance on all your other cards. This allows you to reduce your debts without accumulating additional interest along the way. If you’re looking for a zero percent credit card, head over to Credible to compare cards and see what they can do for you.
According to llian Georgiev, CEO and co-founder of personal finance app Charlie, the benefits of this decision can be enormous.
“All the money you pay each month is applied directly to the principal instead of being split between the debt you owe and the interest,” Georgiev said. “It’s a magic bullet when it comes to paying down debt.”
Credible can help you find the credit card that’s right for you. Choose zero percent credit cards and get a breakdown of annual fees, welcome offers, credit needed, and more.
However, refinancing your credit card isn’t the ideal solution â and it certainly comes with its drawbacks and risks, according to the pros. On the one hand, transfer fees are generally required.
“You have to do the math to figure out if you’re getting a better deal, and it’s easy to get it wrong,” Georgiev said. “The bank is betting you will and that’s why they’re offering you the deal.”
There may also be significant late fees if you don’t make your payment on time, or if you don’t pay off your balance or transfer it before the promotional rate expires, you could end up paying a lower rate. even higher interest than what you are currently paying. .
HOW TO GET A BALANCE TRANSFER CARD
Debt consolidation is a different option. This uses a personal loan to consolidate all your debts â credit cards, car loans, student loans, etc. â in one balance.
“Consolidation loans can take care of credit card debt, unpaid medical bills, collection accounts and payday loans,” Dvorkin said. “A consolidation loan can also lower a person’s monthly debt payments, lower their interest rate, and help them get out of debt faster.”
If you have a lot of high-interest debt, consolidating it can usually mean a lower interest rate and less interest paid over time. It is also easier to manage payments.
If you think a loan like this might be the best choice for you, visit an online marketplace like Credible to get an idea of ââyour debt consolidation loan options.
3 WAYS TO ELIMINATE CREDIT CARD DEBT
âYou replace a bunch of loans, with a bunch of conditions, with one loan that you can understand,â Georgiev said. âIt’s predictable, and just like a car loan, your monthly payment is fixed and has a fixed end date. This makes budgeting easier.
Again, this solution is not perfect. Consolidation loans come with set-up fees, annual fees, transfer fees, etc., and there’s not a lot of flexibility. âYou agree to make a fixed payment for a long period of time,â Georgiev said.
Should I refinance a credit card or consolidate debt?
Credit card refinancing is probably your best bet if you only have a few thousand dollars on your cards â or if those cards come with particularly low rates. You’ll also want to make sure you’re in control of your spending habits, as 0% promotion periods can be very tempting.
Use Credible to determine if a balance transfer or a 0% credit card makes more sense for your financial situation. Credible makes it easy to compare options.
âYou should also avoid getting into more debt,â Georgiev said. “Yes, your old credit card is now at zero, so you may feel like you have a lot of wiggle room, but you don’t. The goal here is to have less debt, at a cheaper rate, not more, on more cards.
To qualify for these cards, you will generally need a credit score of 700 or higher. You also need to run the numbers and make sure your savings will outweigh the transfer fees associated with the card.
Consolidating your debts can be a good idea if you have a wide range of debts and high amounts. You will need to make sure you have a stable income, as these require regular monthly payments for many years.
Be sure to use a personal loan calculator to figure out what your monthly payment might look like, and if you’re not sure you have the income to pay that consistently, then steer clear. You can also use Credible’s free online tools to see what kind of personal loan rates you qualify for. Simply enter your desired loan amount and other simple information to view your options.
“Consolidation loans don’t freeze credit accounts, which means problem consumers can quickly get back into debt,” Dvorkin said. âConsumers hoping to use this debt tool should also consider the cost of a consolidation loan. If they can’t afford loan repayments, loan set-up fees, or interest charges, consolidation is probably not for them.
WHAT APR MEAN ON YOUR CREDIT CARDS AND LOANS
The bottom line
Credit card refinancing and debt consolidation can be good options if you’re dealing with credit card debt. To figure out which route is best for you, be sure to visit an online marketplace like Credible to see what 0% credit card options you might qualify for. Rates for personal debt consolidation loans are also available.
PERSONAL LOAN VS. 0% APR CREDIT CARD: WHICH IS BEST FOR DEBT CONSOLIDATION?