Over 189 million Americans have credit cards. On average, each household with a credit card carries over $8,000 in credit card debt. When not managed properly, credit card debt can quickly spiral out of control, leaving you in significant financial stress. Fortunately, there are ways to refinance your credit card debt.
When you refinance your credit card debt, it can make paying down what you owe easier. You may even be able to pay off your debts faster and save money. Here are 5 ways that can help you to refinance credit card debt.
1. Transfer Your Balance
Balance transfer cards often offer an introductory APR of 0% for a set number of months. If you pay off the balance of your transfer before the introductory period ends, you don’t have to worry about paying any interest, which helps to save you money. Some card issuers may even offer a promotion waiving balance transfer fees.
Credit card companies typically require good credit scores to qualify and the better your score, the better your offers. You may also be stuck paying back deferred interest if you take longer than the promotional period to pay back the balance.
2. Take Out a Credit Card Consolidation Loan
A credit card consolidation (or personal) loan is an unsecured loan that is used to pay off your credit cards. Refinancing your credit card debt this way often helps to lower your interest rates, which can help to save you money in the long term.
In addition to providing lower interest rates, personal loans are often easier to get than a balance transfer, especially if you have less than perfect credit. You can get a personal loan from a bank, credit union, or online lender. Most lenders provide pre-approval without affecting your credit score, which allows you to shop around. There are also options available for those with bad credit.
Interest rates for personal loans vary. Lower credit scores typically mean higher rates. You may also have to pay an origination fee, which comes out of the total borrowed.
3. Borrow Against Your Retirement
If you have a 401(k), you may be able to borrow against your retirement to refinance your credit card debt. Once you withdraw money, you make repayments plus interest. On the plus side, interest payments are to yourself and not a lender.
There are no credit checks, interest rates are fairly reasonable, and payments are automatically deducted from your paychecks. If you lose (or leave) your job while you are still making repayments, you have 60 days to pay off the remainder of the balance. The remainder after 60 days is taxed, and you may be charged a penalty.
4. Consider a Debt Management Plan
A debt management plan is a bit different than a typical refinancing or consolidation plan. Instead of choosing to refinance your credit card debt, you refinance your payments. You pay a debt management company, which works on your behalf to distribute the payments to your various creditors. The company may even be able to negotiate lower payments or lower interest rates.
Debt management plans are often recommended as a last resort. You may not be able to use your cards or open up new cards while your plan is active. There may also be a startup fee or monthly fees involved. Should the company miss a payment, you are still held responsible and the missed payment can reflect negatively on your credit report.
5. Use Home Equity to Refinance Credit Card Debt
If you own your home and have equity in it, you can refinance your credit card debt with a home equity loan. Terms are often longer and interest rates are lower than with other options. Funds can be used for credit cards and anything else that you need money for. The biggest issue, however, is that your home is used as collateral. If you default on your payments, you could lose your house.
If you don’t qualify for a home equity loan, you could sell your home to access its equity, but then you would have to move. A sale-leaseback offers a refinancing alternative that provides a quick way to convert your home equity to cash. Using this program, you can sell your home without having to move. Instead, you remain as a renter and make monthly rent payments. The money you make from the sale can then be used to pay off credit card debts. You even retain the option to repurchase your home at any time or move.
Refinance Your Credit Card Debt: Key Takeaways
While credit card debt can be stressful, there are solutions to help you get rid of it. Talk to a financial advisor to figure out the best option to refinance your credit card debt.