Credit card debt has some of the highest interest rates of any type of consumer loan available on the market today. For this reason, many people want to refinance credit card debt into a lower interest loan. Doing this can help a consumer to pay less interest, lower their monthly payment, and get out of debt faster.
It isn’t too difficult to refinance credit card debt, but it can take some time and effort. Start by totaling up the amount owed between all of your credit cards. In general, there are four ways to refinance credit card debt. They include:
- Balance transfers to other credit cards
- A bank-funded personal loan
- A home-equity line of credit
- A loan from a 401(k)
Look at the available credit balance on your credit card accounts. Specifically, look for a card that has a low interest rate and enough available credit to transfer the balance of the higher interest card onto the lower card. Make sure that the difference in the interest rates is at least three percentage points before making the transfer. This will ensure that the transfer fees do not eat through your savings.
Next, look into a new loan or line of credit that will allow you to pay off the balances on all of your cards. There are several different types of loans that can be used to accomplish this strategy. Start by applying for a new credit card with a lower interest rate than your existing cards. If you currently do not qualify for cards with lower rates, look into a personal loan from a bank. Often, these loans use an item such as a car as collateral, lowering the bank’s risk and thereby giving them the ability to offer the consumer a lower interest rate.
Home Equity Lines of Credit
Another possibility to refinance credit card debt is to use a home equity loan to pay off the credit cards. Currently, these loans have historically low interest rates, but they can be difficult to qualify for. A person must have enough equity in their home to cover the balance on their credit cards, plus any fees that come with the equity loan. It should also be noted that a consumer who defaults on their home equity loan can potentially lose their house. Because of this, a home equity loan is often viewed as a last resort.
Retirement Plan Loans
A final option that many people consider to refinance credit card debt is to take out a loan from their 401(k) or another similar retirement plan. While the option of taking out a loan with interest payable to the consumer seems like an appealing one, there are several faults with this strategy. These loans come with stiff penalties if you are forced to find a new job before the loan is fully repaid, as well as consequences if you miss a payment. In addition, the cost of this loan goes beyond the interest. As soon as money is withdrawn from your account, the potential gain that the money would have made is lost.
Being able to refinance credit card debt is a good way to cut down on the amount a consumer pays in interest while working to get out of debt faster. If one of these methods doesn’t work, keep trying to get your interest rate lowered.