Credit card debt is notoriously expensive. Outstanding credit card payments have some of the highest interest rates. One late payment can push you further into debt with its high penalty fees and interest on the outstanding amount. If you can’t pay this off by the next cycle, it’ll get even harder to get off the debt cycle.

Credit card refinancing and credit card consolidation are two popular solutions to managing high-interest credit card debt. They both involve paying off the debt with another credit card or loan, ideally at a lower interest rate. Each of these methods has its own pros and cons. Which is a better option for you depends on your credit score and how much you owe.

Understanding the difference between credit card refinancing vs consolidation and the pros and cons of each can help you make an informed decision.

What is Credit Card Refinancing?

Credit card refinancing involves moving credit card balances from your current card or lender to a new card or lender. To do this, you need to apply for a credit card that meets two criteria:

• It offers a 0% interest balance transfer option
  
• It has a high enough credit limit to include all your current credit card debts
  

Finding a card with 0% interest is key. Many credit card issuers offer new cardholders a zero-percent introductory period. This allows you to transfer debt from your high-interest cards to the new card without paying any interest on the balance.

For credit card refinancing to work, you must pay off the balance during the promotional period, which is typically about 12 to 18 months. Any balance that’s not paid within this introductory period will attract a high-interest rate of anywhere between 16% and 20%.

Pros of Credit Card Refinancing

• The 0% interest rate allows you to pay off your credit card debt interest-free during the promotional period
  
• You can clear all your debt interest-free if you get a card with a high enough credit limit
  
• It’s easy to get approved for a high-limit credit card if you have good credit
  
• You can eliminate your debt totally through refinancing with judicious use of your new credit card
  

Cons of Credit Card Refinancing

• You need a good credit score to get approved for a 0% interest rate credit card. The exact minimum varies from one credit card issuer to another.
  
• The 0% introductory period usually expires in about 12 to 18 months. If you haven’t paid off your balance by then, you’ll pay interest of about 16 to 18 percent on the outstanding.
  
• Most card issuers charge a 3% to 5% fee of the balance transferred, which is added to the balanced owed.
  
• The credit limit on the new card must be enough to accommodate all or most of what you owe on your current cards.
  
• You may be penalized and could lose the 0% promotional rate if you exceed the credit limit or make a late payment on the card.
  

What is Credit Card Consolidation?

Credit card consolidation involves taking a personal loan to pay off multiple credit card balances. To consolidate your credit cards, you’ll need to apply for a personal loan. The loan amount will be paid out to you in a lump sum with a fixed interest rate and loan term.

You use the personal loan funds to pay off your high-interest credit card debt. You then pay off the personal loan in monthly payments till it is completely paid off. The biggest advantage of credit card consolidation is that it gives you additional time to pay off your debt at a lower rate of interest.

Personal loans do have high-interest rates because they are generally unsecured or not backed by collateral. Still, the interest rate on a personal loan is still lower than the interest on credit cards.

Pros of Credit Card Consolidation

• Longer repayment period of about 3 to 5 years
  
• Lower interest rates than interest rates on credit cards
  
• No collateral needed
  
• Fixed monthly payments over the loan term making it easier to budget
  
• One monthly payment rather than dealing with multiple credit card payments
  

Cons of Credit Card Consolidation

• You need a good credit score to qualify for lower interest rates
  
• Loan processing fees can add up
  
• It can take time to process a personal loan
  
• You’ll be paying off the personal loan for the next 3 to 5 years. If you don’t stop or cut back on credit card spending, you may be right back to where you started.
  

Is Credit Card Refinancing Or Consolidation Right For You?

The right choice for you will depend on your financial situation and the amount of credit card debt you’ve accumulated.

Credit card refinancing is a better option for you if:

• You have a high credit score of at least 680, preferably higher
  
• Your credit card balance is relatively small and could reasonably be paid off within a year
  
• You get a card with a high enough credit limit to transfer all your high-interest debt to the new card
  
• You’re sure you can pay off the debt on the zero-percent card within the 12 to 18-month introductory period
  
• Your aim is to reduce your monthly payments
  

Credit card consolidation is a better option for you if:

• Your credit card debt is too high for you to pay off completely within the zero-interest promotional period
  
• You qualify for a low-interest personal loan with low fees and costs
  
• Your house has equity, and you qualify for a home equity line of credit or low-interest second mortgage
  
• You can afford the monthly loan payments for the duration of the loan term, which is generally about 5 years

Take time to understand what credit card refinancing vs consolidation involves and the pros and cons of each. This will help you make a decision that’s right for you with regard to eliminating credit card debt.