Bottom Line:
When you refinance a debt, what you are doing is revising or replacing the terms of your existing credit agreement. This could include changes to interest rates, repayment schedules, and/or other terms decided on in your original contract. Avoid future credit card debt by getting the right card, keeping only one card, using it only in emergencies, and keeping your card in a safe place.
Key Takeaways:
- If interest rates fall, it could be wise to refinance your credit card debt as it could potentially lead to savings on debt repayments.
- Look at the ‘revert’ rate that will be applied once the transfer period is over to ensure that it’s not worse than your current rate.
- The benefits of refinancing your credit card debt includes having lower interest rates, lower repayments, more simplicity, and less stress.
- Rather than dealing with multiple creditors and negotiating terms with each, a debt management firm can help you take control of your credit card debt and negotiate regular payments.
- If you feel lost in debt, you can contact Debt Fix and we can give you a free debt consultation to work out a plan that suits your specific situation.
You get your first credit card at 18, you make a few silly decisions because you’re young, and before you know it, you’re $10k in debt. You get another credit card to help pay off the first, but you can only afford to pay the interest, so your debt keeps growing no matter how much money you throw at it. It’s really easy to lose hope when you find yourself in a situation like this, but there are always other options for you. This blog will explain how you could refinance credit card debt. If you feel lost in debt, you can contact Debt Fix, we can give you a free debt assessment and help work out a plan that suits your specific situation.
For a situation like the one previously described, you may find that refinancing your credit card debt is the right step forward to help you begin your journey towards debt freedom. Keep in mind that each person’s credit report and situation is different, so it’s best to speak with our debt experts to find the best option for your situation.
What is Refinancing Credit Card Debt?
Put simply, credit card refinancing moves your credit card balance from one lender to another. When you refinance a debt, what you are doing is revising or replacing the terms of your existing credit agreement. This could include changes to interest rates, repayment schedules, and/or other terms decided on in your original contract. If the changes you want to make are approved, then your new agreement will replace the old one.
Usually, refinancing your credit card debt is done when there are changes to interest rates in the market. If interest rates fall, it could be wise to refinance your credit card debt as it could potentially lead to savings on debt repayments. Your credit and repayment status will be re-evaluated if you choose to refinance.
Refinancing your debt is similar to consolidating your debt in that the debt doesn’t go away, it just gets transferred to a new lender who will give you new repayment terms. This is why refinancing may not be the best solution for you, so make sure you discuss all your options with an expert before you commit yourself to a new debt. If you are considering this option, here’s how some of our customers have refinanced their credit card debt.
The Process of Refinancing Credit Card Debt
You can refinance your credit cards by transferring your balance to a new card. If you have a good transfer deal then you will find that the interest rate on your debt is much lower during the transfer period than it was before. You can use this period to pay back more of your debt without having to worry about it growing even more. Be careful though, as once the transfer period is over you may find that you are back in the same position you were in before. Look at the ‘revert’ rate that will be applied once the transfer period is over to ensure that it’s not worse than your current rate.
Your options on how to refinance credit card debt
Use a balance transfer
You can refinance your credit cards by transferring your balance to a new card. If you have a good balance transfer fee or deal, then you will find that the interest rate on your debt is much lower during the transfer period than it was before. You can use this period to pay back more of your debt without having to worry about it growing even more. Be careful though, as once the transfer period is over you may find that you are back in the same position you were in before. Look at the ‘revert’ rate that will be applied once the transfer period is over to ensure that it’s not worse than your current rate.
Consider a personal loan
Personal loans allow you to bring your smaller loans, like credit card debt, into one repayment. You may find it easier to pay off your existing debt with only one repayment, with one set of fees and one interest rate. You can choose to pay at a schedule that best suits you, rather than paying a few balances off at different times.
While these loans might seem more accessible, they can often have shorter repayment terms and therefore a higher interest rate. Keep in mind that your credit score can influence your borrowing power, including the amount of money your lender approves, monthly payments, and the interest rate for your loan. Carefully consider if you can maintain your living costs when you take out a personal loan. You may be tempted to overspend, but if your debt becomes unmanageable, it can affect your saving ability and paying your bills.
Like all options when it comes to how to refinance credit card debt, there are pros and cons to personal loans. We encourage you to do your own research and weigh up all your options before committing. We recommend booking a complimentary 30-minute consultation with our trusted financial experts if you are considering debt consolidation.
Use a debt management plan
A debt management plan is an arrangement made between debtors and creditors, with help from debt management firms. Debt management plans can help you move your existing repayments into one repayment. Rather than dealing with multiple creditors and negotiating terms with each, a debt management firm can help you take control of your credit card debt and negotiate regular payments.
A debt management firm will work with you to create a monthly payment plan that is sustainable for your budget. Debt management plans can work out a reasonable timeframe with debtors that may be easier for you to manage. In many cases, this could be between 2-5 years allowing you to have an end date to your debt repayment.
A debt management firm, like Debt Fix, will work with you to create a realistic budget, how many debts you would have and what repayment you can afford. Once we can confirm the details with you, we can negotiate with your lenders and support you to get back on your feet. By having the support of a debt management company, you don’t have to deal with the stress of negotiating with creditors.
The benefits of Refinancing You Credit Card Debt
The benefits of refinancing your credit card debt will depend on your specific situation, so it is important to thoroughly review your situation and discuss it with an expert before you make the decision to refinance. How could refinancing credit card debt benefit someone?
- Lower interest rates: Refinancing your debt gives you the opportunity to find a lender who will give you a lower interest rate. This will save you money in the long term as it will decrease your debt’s rate of growth, so you won’t end up paying thousands more dollars than the original sum of the debt.
- Lower repayments: If you find it difficult to pull together enough money to repay your debts each month, then you need to secure a lower rate or you will find yourself falling behind on repayments. At best, this will extend your time in debt, and at worst you will incur fines for late payments, increasing your financial hardship. Refinancing your credit card debt gives you the opportunity to renegotiate the amount of money you need to pay each month, so you can start paying back your debts at a rate that better suits your circumstances.
- More simplicity: Having more than one credit card and multiple lenders leads to a complicated repayment schedules that will see you paying different sums of money at different times in the month to different people. It’s enough to make even the most organised person confused. Refinancing gives you the opportunity to simplify things, keeping your monthly repayment to one sum being paid to one person at the same time every month.
- Less Stress: Debt is already stressful enough without also needing to contend with high interest rates, difficult repayments, and multiple lenders. Although refinancing your credit card debts won’t eliminate the stress of having debt in the first place, it can minimise the other stressors that make handling it more difficult.
Avoiding Future Credit Card Debt
The easiest way to get out of credit card debt is to not go into debt in the first place. So, if you have started your journey out of debt or are now debt free, follow these tips to avoid piling up new credit card debt.
- Get the right card: No two credit cards are the same, so make sure the credit card you get comes with low interest and a repayment schedule you can keep up with.
- Only keep one card: You should only have one credit card, if you have more than one then you need to get rid off all of them except the one with the lowest interest rate. Having more than one card encourages gives the false impression that you have more credit to play with and it makes staying on top of repayments more complicated than necessary.
- Use only in emergencies: Your credit card should be your last resort, not your go-to option. You should be using cash whenever possible, only using your credit card to pay for things you need but don’t have enough cash for, like car repairs.
- Keep your card in a safe place: Out of sight, out of mind. If you keep your card in a safe place in your home then you won’t be tempted to use it when you’re out and about.
Following this advice will help you remain debt free, for more advice on debt settlement, you can check out our hints and tips page.
At Debt Fix, we help Australians begin their journey towards debt freedom. We are a Government Registered qualified debt Agreement Administrator and Finance Broker, and we exist to help everyday Aussies navigate their debt. Contact us today for more information on how you can refinance your credit card debt.