Credit card refinancing: What is it?

Watching your credit card balance climb upward each month can be stressful. Interest can start accruing when you can’t pay off your balance in full, and you may have to pay late fees or penalties if you can’t keep up with the minimum payments. 

In this situation, you may be looking for ways to reduce your credit card debt or save money on interest. Credit card refinancing is one option. This debt-payment strategy is similar to refinancing a mortgage because you pay off one balance using a low-interest credit card or loan.

Here’s what to know about credit card refinancing and how it compares to debt consolidation. 

Key takeaways

• Credit card refinancing is a strategy where you pay off your card balance using a lower-interest credit card or personal loan. 

• Debt consolidation is similar to credit card refinancing but may include other types of debt besides credit card debt.  

• People often refinance credit card debt to save money on interest. But it’s important to watch out for any fees involved.

Credit card refinancing—also known as credit card debt consolidation—is the process of paying off a credit card balance using another credit card or loan. People often refinance credit card debt to save money on interest costs and potentially get out of debt more quickly.

There are some great benefits to credit card refinancing. Refinancing can help you: 

• Pay less in interest charges. Depending on your credit card balance and the difference between the interest rates, you may save hundreds or thousands of dollars in interest charges by refinancing. 

• Access promotional rates. Some credit cards come with a promotional 0% APR for a certain period. If you pay off your balance within this time frame, you may avoid paying interest on your debt.

• Potentially get out of debt faster. When you pay little or no interest on your debt, more of your monthly payments go toward the principal balance. This means you can pay off the balance faster and reduce your time in debt.

• Have fewer monthly payments to manage. If you refinance multiple credit cards and combine the debts into one credit card or loan balance, you’ll have fewer payments to track each month.

Credit card refinancing has some potential drawbacks worth considering too: 

• Meeting lender qualifications and limitations. Many 0% APR credit cards are only available to those with good credit or excellent credit. When you apply for a new card or loan, the lender may run a credit check and may verify your income and employment.

• Impacting your credit scores. Applying for a new credit card or loan to refinance your credit card debt may initially lower your credit scores. That’s because applying for credit may result in a hard credit check. And the new account will lower the average age of your accounts—one of the factors that may affect credit scores.

The key difference between credit card refinancing and debt consolidation is the type of debt involved. Credit card refinancing refers to getting new terms on a credit card or multiple credit cards. 

Debt consolidation is similar because it involves paying off debt using a low-interest credit card or loan. But with debt consolidation, you can consolidate other types of debt in addition to credit card balances.

Credit card refinancing might be a good option if you:

• Want to get better terms on credit card debt

• Qualify for a 0% introductory APR

• Can pay off your balance before the introductory period ends

• Qualify for a balance transfer offer

• Can lower your monthly payment

Debt consolidation may be a good option if you:

• Want to consolidate multiple types of debt into a single monthly payment.

• Need a longer period to pay off debt.

• Qualify for a good rate on a personal loan.

• Have enough home equity to qualify for a home equity line of credit (HELOC) or home equity loan (HEL).

Credit card refinancing may help when interest starts building. Refinancing involves taking out a lower-interest credit card or loan to pay off your original balance. Then you pay down the new balance over time. This method can help you save money and simplify your payments.