It’s an almost never-ending story. You graduated from college, have some car problems, and for the first time, you find yourself in credit card debt. This can happen suddenly.
No one would ever have to go through unmanageable debt through credit cards in a perfect universe. But we do know this isn’t the case. There are several explanations for why people can end up in debt, like health bills, unexpected incidents, or work layoffs.
You could be considering refinancing a credit card if you have high-interest credit card debt, and you are willing to draw up a plan to pay it back. The process of refinancing a credit card and how interest rates can adjust when you do so are explained here.
What is Credit Card Refinancing?
Credit card refinancing is a form of debt consolidation which could make your life easier by enabling you to merge multiple credit card debts into one easy payment.
A credit card refinancing loan can come with low, fixed interest rates not changing during the loan’s duration.
You could save thousands of dollars in interest if you are one of the many people who can’t afford more than the minimum monthly payment on high-interest credit cards.
Interest rates aren’t as cheap as we would like — or often need them to be — but credit card refinancing is one move users can avail to make their credit card interest rates more desirable.
Process of Refinancing a Credit Card
The three ways to do so are through balance credit card transfers; nonprofit debt consolidation through a debt management plan; and debt consolidation loan from a bank, credit union, or online lender. Your credit score can dictate the best choice for you.
For example, people with low credit scores do not qualify for credit card balance transfers and can fail to get a debt consolidation loan they can handle. A nonprofit debt consolidation, on the other hand, is always an option, no matter how bad your credit score might be.
Balance Credit Card Transfers
A balance transfer shifts the debt from one or more credit cards to another with lower interest rates. Some credit cards offer a 0% APR balance transfer rate to pull in new, potentially long-term customers.
There can be a transfer fee of 1%-5% of the balance owed, meaning you ‘re adding to your debt, so weigh it into your decision. The introductory rate of 0% typically lasts from 12 to 20 months.
That means you have little time to enjoy interest-free debt benefits. Once the introductory window is closed, you will be subjected to a regular APR ranging from 14% to 24%.
You can end up right back where you started if you don’t pay off your balance or struggle to at least make a dent in it.
Nonprofit Debt Consolidation
Nonprofit debt consolidation brings all the credit card debt together in one bowl. The nonprofit agency serves as an intermediary between yourself and your creditors.
They will strike a deal to cut the interest rates to 8%-9%, often even lower, and get you to a manageable monthly payment.
Your task is to make a single monthly payment to the agency, which will then ensure the money is charged in an agreed-upon amount to each of the card companies.
Nonprofit debt consolidation provides a reliable way out. You’ll be free of credit card debt once the process comes to an end.
Debt Consolidation Loan
A debt consolidation loan is an unsecured personal loan that you take out for debt payments. If you have a decent or outstanding credit score, this choice works.
A debt consolidation loan will only make logical sense if the loan’s interest rate equals the credit card rate that you are attempting to pay off.
A decent credit score will get you 11% rates. This service is worth considering even with a fair credit score if the rates offered are small enough.
The good thing about a debt consolidation loan is that interest rates are set, and you won’t have to think about monthly payments varying. You will have to make the same payment each month until your debt is repaid, which is normally 3-4 years.
Conclusion
When deciding between a balance transfer and debt consolidation, compare the charges and interest rates.
If you have a good credit history and credit card debt of high interest, a credit card refinancing loan can lead to cost savings on interest and bidding farewell to credit card debt – once and for all.
