Debt Consolidation Vs. Credit Card Refinancing: The Best Option

Credit Cards

If you’ve fallen behind on your credit card payments and into debt, it can quickly become what seems like an endless cycle. High-interest payments combined with debt that racks up more every month can seem like a game you can’t win. However – there are some options that can at least give you some small relief and help you get back on track.

This article will focus on two of these options, credit card refinancing, and debt consolidation. Essentially, these both serve the same goal, but there are key differences that will be highlighted in this article. We will explain both concepts and show you how you can choose based on your needs.


What is Credit Card Refinancing?

Under a credit card refinancing strategy, you are essentially moving your debt from one (or several) credit cards, onto a credit card with a more favorable interest rate. Ideally, you will choose a credit card with an interest-free period (usually 12-18 months or so), and a large credit limit. You then transfer your balance to the interest-free credit card, effectively lowering (or eliminating) your interest payments for the duration of the interest-free period.

This strategy can be highly effective for lowering your interest obligations, but you will need to pay off your debt during the interest-free period to benefit fully from this strategy. However, having an interest free period will allow you to simply focus on paying down the principal instead of only the interest.


Things to Look Out For

Of course, if you are intent on credit card refinancing, you might want to be sure that you focus on paying down the principal during this time. There can be a temptation with no interest to add even more debt and increase spending, but that will leave you in a worse position than before when the interest-free period is over.

Additionally, this strategy only works if you are able to qualify for an interest-free credit card. You often need to meet a certain minimum credit score to qualify for one of these cards, which determines whether you can attempt this strategy in the first place.

You also may want to consider the balance transfer fee. Generally, when transferring a balance to an interest-free credit card, there is a transfer fee of about 3-5%. This can really add up if you have a large amount of debt.

These are all relevant considerations in choosing this strategy. If you believe that an interest-free period will be invaluable for you to pay down the principal on your debt, then this might be the ideal strategy. Next, we will consider a similar strategy, debt consolidation.


What is Debt Consolidation?

Debt consolidation is quite similar to credit card refinancing but involves taking out a loan to pay down high-interest credit card balances. Essentially, you are moving several payment schedules into one loan, which you pay back on a more fixed schedule.

Of course, the effectiveness of this strategy will depend on the type of loan that you receive. The loan can be secured, as with a home equity loan, or unsecured, as with some installment loan.

An installment loan is a very common strategy for debt consolidation. These loans generally offer a predictable interest rate, fixed repayment terms, and predictable monthly payments. This allows you to take all of your credit card payments and put them on a very specific payment schedule, often with lower interest rates than you were paying before. This loan can be secured or unsecured, depending on your terms.

Home equity loans are another option. Because they are a secured loan, they can often offer lower interest rates because the risk is not as high for the lender. These loans provide the same benefits of a much more predictable payment schedule.

Overall, the main benefit of this strategy, aside from the obvious lowering of interest rates, is the ability to take the stress out of juggling several different payments every month. You are grouping your debt into a single, predictable payment, which might allow you to refocus.


What to Look Out For

If you plan to go the home equity loan route, you face the risk present with any secured loan. You are essentially putting up your house as collateral, which is a big risk if you are unable to make payments.


With installment loans, there is always the potential difficulty of being approved, as there is a larger risk on the lender with an unsecured version of this loan. This also presents the possibility of higher interest payments, although it will still likely be lower than the interest on your credit cards.


How to Choose: Debt Consolidation vs. Credit Card Refinancing

As you can see above, there are clear advantages and disadvantages to each of these strategies. Ultimately, the one that is right for you will depend on your personal situation.

Credit card refinancing might be ideal if you believe you can repay your debt during the short interest-free period. It essentially only gives you a short window before the interest kicks back in. So with proper planning and preparation, it can be an ideal strategy, but only if you are committed and financially prepared to pay down the principal during a short period.

Debt consolidation offers similar advantages to credit card refinancing, but some prefer it because it offers a more predictable and consistent strategy for repaying your debt. While it does not offer an interest-free period, it does offer a predictable window for repaying the entirety of the loan. You may be more comfortable with consistently lower interest rates, and a consistent monthly payment.



Credit card refinancing and debt consolidation will continue to be two attractive options for providing a more manageable debt situation. What you choose will ultimately depend on your personal circumstances, but both offer attractive advantages. It will come down to how you want to structure your payments, and which strategy you think will offer you the best interest rates over time.

If you are considering either of these methods, be sure to do your research carefully before making a decision.

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