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Credit Card Refinancing: What You Need to Know

7 minute read Woman sitting on her couch using her cellphone to search for details on credit card refinancing.

Disclaimer: Upstart is not a financial advisor. The following content is for informational purposes only.

Credit cards: you can’t live without them, but if you’re anything like most Americans, you could do without the credit card debt.

If you’re tired of minimum monthly payments and revolving credit lines, you’re not alone. Instead of accepting debt as your reality, you can take the first steps toward improving your financial health with credit card refinancing. 

While it may sound complicated, credit card refinancing is a relatively simple way to streamline the debt repayment process. This helpful guide includes everything you need to know about credit card refinancing, whether it could work for you, and what every borrower should consider before choosing a credit card refinancing loan. 

What is credit card refinancing? 

Credit card refinancing is the process of replacing your high-interest credit card payments with a single, lower-interest payment. You can typically refinance your credit card in one of two ways: through a credit card refinancing loan or a balance transfer credit card. 

Many loans used to pay off credit card debt have fixed interest rates that won’t change during the term of the loan. In addition, personal loans usually have lower rates than credit cards, allowing you to put more money toward your principal balance each month.

Credit card refinancing vs. debt consolidation

Credit card refinancing and debt consolidation are very similar. They even achieve the same outcome: a single, manageable payment instead of a monthly juggling act as you try to make payments on time. That said, there are a few differences between credit card refinancing and debt consolidation, which we’ve broken down below.

Debt consolidation usually involves combining multiple types of debts into one payment by taking out a loan, such as a personal loan. After accepting the loan, you’ll receive the total amount in a single lump sum, or one-time payment. You can use the funds to pay off each balance, then make monthly payments on the loan instead of on multiple credit lines.

Credit card refinancing focuses solely on revolving credit card debt and allows you to lower your interest rates using a loan with favorable terms. For example, you may opt for a short-term loan with a lower interest rate or spread your payments out over several years.

Keep in mind that longer-term loans will typically cost you more, even if the monthly payment is lower. That’s because the interest rate on a longer-term loan will usually be higher since your lender won’t get their money back for a longer period of time. 

It’s also worth noting that, in most cases, you will need to meet certain credit score requirements to qualify for a low-interest refinancing loan. If your score is low or nonexistent, don’t worry. You can take small steps to improve your credit score starting today.  

The best way to start is by paying all your credit card bills on time. Your credit score is largely based on your credit history, so making timely payments—even if they’re the minimum amount required—can help. Setting up automatic payments is an easy way to never miss a payment, especially when life gets busy. 

You can also focus on reducing your credit utilization ratio to improve your score. Using cash or debit cards while paying down your credit card debt can help slow the growth of debt and improve your credit utilization ratio. Asking for a credit limit increase can have a similar effect, but remember: just because you can spend more on your credit cards doesn’t mean you should. 

And if you don’t have any credit at all? You’re in luck; you have the opportunity to build your credit from the ground up. 

Is it a good idea to refinance credit card debt?

Credit card debt is expensive, no matter how much you’ve incurred. Interest rates, late fees, and annual costs stack up. We know how hard it is to get ahead of your payments, too, especially when revolving lines of credit come into play. Not to mention, you’ve still got everyday expenses, bills, student loans, and rent or mortgage payments to make. 

Refinancing credit card debt may reduce the financial squeeze you feel each month. No, it won’t make your debt disappear overnight, but it can provide you with a path to repay your debt and take control of your finances for good, whether you choose a personal loan or a balance transfer credit card. 

Still not sure which option is right for you? Let’s look at some of the pros and cons of refinancing with a personal loan and a balance transfer credit card. 

Credit card refinancing loan pros and cons

Pros: 

  • Good for larger amounts of debt
  • Longer repayment periods and lower, fixed monthly payments (the average Upstart loan has 3 to 5-year terms*)
  • Lower APRs 
  • Structured, affordable repayment plans keep you on track to pay off your debt
  • No balance transfer fees

Cons: 

  • May be more expensive for borrowers with a low credit score 
  • Usually comes with additional costs, like origination fees, late payment penalties, or other charges
  • May have minimum or maximum borrowing amounts

Balance transfer card pros and cons

Pros:

  • Better for smaller amounts of debt
  • May come with an interest-free introductory period lasting anywhere from 6 to 21 months
  • Highly flexible payment structure lets you control how much you pay each month
  • No annual fees

Cons:

  • Typically requires a good to excellent credit score (670 or higher on the FICO® scale) to qualify
  • Comes with a 3% to 5% balance transfer fee that could counteract any introductory period savings
  • Doesn’t have a set repayment schedule to help you pay off your debt faster
  • Usually has a higher APR after the interest-free grace period ends

The bottom line: Balance transfer credit cards and personal loans are both great ways to refinance your credit card debt. But if you know you need more than 6 to 21 months to repay your credit card debt or want the structure of a repayment plan, a credit card refinancing loan may be the best option for you. Otherwise, you may be tempted to pay the monthly minimum or increase your credit card balance, leaving you with more debt than when you started. 

What to consider when choosing a credit card refinancing loan

If refinancing your credit cards seems like a good fit, the next step is to find the right personal loan. Loans vary based on several factors, including the provider, the term of the loan, and the amount of money in question. Here are a few more factors to consider: 

  • The minimum and maximum loan amounts available. Personal loans can range from $1,000 up to $100,000, depending on the loan provider. Some states have laws designating minimum loan amounts, too. 
  • Interest rates and additional fees. Obtaining a loan with a lower interest rate may seem like a win, especially if you’ve been paying credit card rates for years. However, keep an eye out for extra charges, like an origination fee when you get the loan or a prepayment penalty, which is a fee some loan providers charge if you repay your loan early. 
  • Time to receive your funds. Depending on your circumstances, you could receive your credit card refinancing loan funds in as little as one business day. 
  • Credit score and income guidelines. Some lenders have strict guidelines regarding credit scores or annual income. With that in mind, check each lender’s requirements before applying. You can also look for lenders and lending platforms that consider factors such as education and work history during the approval process. 

Does refinancing your credit cards hurt your credit score?

Speaking of your credit score, it’s no secret that loan providers perform a credit history pull, or inquiry, after you apply for a loan. Because of this, many people are hesitant to pursue loans to pay off credit card debt, especially if they’ve already got lower scores. 

Applying for a loan to refinance your credit cards won’t necessarily impact your credit score as much as you’d think, though. In many cases, loan providers will perform a soft inquiry after you apply. This allows them to provide you with accurate information while keeping the inquiry off your credit report. 

If you decide to accept the loan terms, you will usually be subject to a hard inquiry. Hard inquiries do show up on your credit report and may reduce your score by a few points. Yet, you’ll likely improve your credit score in the long run by making timely payments and reducing your debt-to-income and credit utilization ratios. 

Other ways to consolidate your credit card debt

Not sure if credit card refinancing is right for you? We’ve got you covered there, too. Many debt management and repayment strategies exist, but it’s essential to familiarize yourself with your options to help guide you toward the right choice for your financial future.

We’ve listed a few alternative credit card consolidation methods for you to consider. 

Home equity loans

Did you know that you can tap into your home equity to pay off your credit cards? Home equity loans are based on the difference between your home’s market value and the amount you owe on your mortgage. 

Unlike most personal loans used to pay off credit cards, home equity loans are secured–or backed–by your home. That means you can typically get a lower interest rate and a longer repayment period, even if you have a lower credit score or no credit at all

Home equity loans come with a catch, though. Because you used your home as collateral, your loan provider could seize your property if you default on your payments. 

Retirement account loans

Generally speaking, you shouldn’t borrow money from a retirement account until you’ve exhausted other loan options. Doing so may impact your retirement plans, and you could face serious penalties if you don’t repay the loan in time. In addition, you can only borrow against certain retirement accounts, such as an employee-sponsored 401(k). 

Retirement account loans come with an advantage, though: they won’t appear on your credit report or impact your credit score.

Ready to refinance your credit cards? Get started today

After reading this article, you should be more familiar with several credit card debt consolidation options. Only you can decide if credit card refinancing is right for you, though. 

If you’re ready to move forward, take some time to compare the best personal loans to pay off credit cards. As we’ve discussed, each loan has a different cost based on factors like interest rates, origination or prepayment fees, term length, and more. So, some may be better suited to your needs than others. 

Learning more about your options–and fully understanding the details of your loan–will empower you to pay off your debt faster while reducing stress and moving you closer to financial freedom. 

*The full range of available rates varies by state. The average 5-year loan offered across all lenders using the Upstart platform will have an APR of 24.95% and 60 monthly payments of $26.34 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $15,807 including a $653 origination fee. APR is calculated based on 5-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.

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* When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information will be reported to the credit bureaus.

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