What are the Benefits of Refinancing Your Credit Card Debt?
If you have high-interest credit card debt that's weighing on your mind, refinancing may be the right solution for you. But there are a few things you need to know before jumping in.
Lower Interest Rates
Credit cards are a convenient way to spend money without carrying cash, but they can also be expensive. Interest rates can be high, and if you have debt on multiple cards, you may have a hard time making your payments on time. Fortunately, there are loan options that can help you lower your interest rate and simplify your monthly payments. These include credit card refinancing and debt consolidation. The key to choosing the right option is to evaluate your personal financial situation. You need to decide whether it makes sense for you to take out a debt consolidation or credit card refinance. Debt consolidation typically involves transferring several credit cards into one personal loan. These loans typically have a fixed interest rate and a fixed payment plan for two to five years.
Boost Your Credit Score
Aside from saving you money in interest rates, credit card refinancing can also boost your credit score. FICO’s scoring model looks at several factors to determine your credit score, including payment history and credit utilization. Payment history accounts for 35% of your credit score, so if you pay off debt on time and use your cards judiciously, your credit score will improve. Similarly, paying off your debt using a personal loan can help to reduce your credit utilization rate, which accounts for up to 30% of your credit score. When you apply for a new loan, your lender will run a hard inquiry on your credit file. This may temporarily lower your credit score, but it’s only considered by FICO for 12 months.
Save Money In The Long Run
You can lower your overall interest rate and even consolidate multiple debts onto one card with a low interest rate, saving you thousands of dollars in the process. However, there are some things you need to keep in mind before deciding to refinance your credit card debt. For starters, the bank or credit issuer may charge a balance transfer fee, which is typically 3-5% of your current balance. It also depends on your financial situation and what your debt load looks like. If you have a large amount of credit card debt, a personal loan may be a better option for you than a balance transfer. Unlike a balance transfer, these loans are considered installment credit, meaning you pay them off in equal monthly payments until you’ve paid them off. This means you can budget them more easily and eliminate the chance of missing a payment.
Get Control Of Your Debt
Credit card refinancing can be a great way to get control of your debt. It can help you save thousands of dollars and years of payments in the long run, depending on your credit cards’ interest rates. You can use this money to pay off the credit card balances that have the highest interest rates first. This strategy is known as the debt snowball, and it can make paying off credit card debt easier. Another option is to consolidate your credit card debt with a personal loan or a home equity loan. These loans can be a good option if you have a high credit score and you can secure a low interest rate. If you’re not sure how to choose which loan is best for your situation, you can ask for advice from a financial expert. You can also try a free debt counseling service that will help you create an affordable debt repayment plan.
Learn how OUR Credit Union can help you save by refinancing your credit card debt today!
« Return to "Blogs"
- Share on Facebook: What are the Benefits of Refinancing Your Credit Card Debt?
- Share on Twitter: What are the Benefits of Refinancing Your Credit Card Debt?
- Share on LinkedIn: What are the Benefits of Refinancing Your Credit Card Debt?
- Share on Pinterest: What are the Benefits of Refinancing Your Credit Card Debt?