Refinance Credit Card Debt

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Need To Refinance Credit Card Debt?

If you are in a position where you need to refinance your credit card debt there may be more options available to you than you realize. If fact, digging into what can  be done will possibly uncover so many ways to go that you run the risk of becoming overwhelmed with the number and complexity of the options available to consolidate credit card debt.  Here is a brief summary of strategies for refinancing credit card debt.

Balance Transfer

If you have good credit this is one way to get your interest rates down for a short period of time so that whatever you pay toward your credit card debt will go entirely to pay down your balance rather than going toward interest charges and/or fees. To accomplish this apply for a new credit card or take advantage of an existing card’s special balance transfer offer offering an introductory 0% APR six or twelve month interest rate period, then transfer  all of your credit card balances to this credit card account.  You will be provided with convenience checks for transferring your balances or you can simply call customer service with account information for each credit card you want to refinance and consolidate.

Here is what to consider when you do this: Get the best terms you can. Meaning the longest 0% APR introductory period you can get.  Try for at least six months and hopefully you can get twelve months. Also, look for other rewards such as car rental insurance, identity theft protection programs, money saving discounts or cash back on purchases and travel points. Look for 0% APR on purchases as well as balance transfers. Go to bankrate.com to find the best deal.

Now, be careful: Watch out for hidden traps that can explode in your face and result in this strategy making your credit card debt worse rather than better. First are late fees,over-the-limit fees and transfer frees. Don’t ever be late, not even one time, with your payment. This can cause your interest rate to skyrocket and you can even be charged interest on your balance from the beginning of the introductory period even if you are several months into it.  Getting charged interest back to the “beginning of your transfer” can also happen if you don’t get all of the balance paid off by the end of the 0% APR introductory period. Or, at least whatever balance is left may be subject to a much higher than market APR at the end of the introductory period.  So get it ALL paid off before then. Don’t ever charge over your credit limit and make  sure there is no balance transfer fees, or if there is one, it must be capped at a low amount such as $50 or $75. If the transfer fee is not capped it can end up costing you several hundred dollars negating the cost benefits of the balance transfer.

Lastly,  if 0% APR doesn’t apply to new purchases you may want to consider using another card for new purchases because your payment may be allocated entirely toward the lower 0% balance leaving the “higher interest new purchase balance” to build up and you will see more and more finance charges each month if your continue to make new purchases. Read more about getting your balance transfer correct at the outset.

Loan Refinancing:

Mortgage Loans

Again, if you have good credit and available equity in your home this is another viable option to refinance credit card debt.  You can refinance (or remortgage) your first mortgage or take out a second “home equity loan”. This will consolidate your credit card debt into your mortgage loan or loans so that your credit card debt essentially becomes mortgage debt. This will substantially reduce the interest you are paying on the debt and increase the loan term; length of time you have to pay it off. The benefit achieved will be a much lower monthly payment and interest rate, increasing  your cash flow and lowering monthly finance charges.

However, there is a price to pay: Firstly, your previously unsecured credit card debt is now “collateralized” with your home putting you at risk of foreclosure if you default.  Secondly, the ultimate cost of the debt you raked up on your credit cards will now cost you a lot more in total finance cost because you are going to be paying the debt back many more years than what is possible if left on your credit card accounts…making the final cost of clothing, appliances, vacations and other personal items you charged on your credit card accounts substantially more than the original purchase price.

If you decide that you must go the secured loan route but don’t have a home, see if you may have other assets that can be pledged as collateral such as investment or retirement accounts,  non-owner occupied real estate, or vehicles with no current loan against them.

Unsecured Loans

It may be possible to get an unsecured or “personal signature” loans from your bank, credit union, or even unconventional loan sources such as your employer or private parties like friends or family.  When applying at a financial institution like your bank you will need to have good or even pristine credit in order to get better terms than what you have with your credit card. However, you can negotiate face-to -face with your local loan officer. Just don’t accept the loan unless it is truly better than what you currently have with your credit cards. Use a loan calculator to compare. Several of these can be found online.

Friends or family can be a good source for a loan to consolidate debt. You will have to offer them a good ROI premium over what they are able to get with more secure investments. Also, realize if you don’t pay them on time or if you default, you will be running the risk of permanently damaging your relationship. Always have legal loan documents that specify clearly what the terms of the loan are so that both parties know exactly what to expect during the course of the loan.

Debt Consolidation Services

If you have lots of card debt, find that loan refinancing is impossible, are behind on monthly payments and need someone to intervene in your financial affairs,this may be the way to go. However, realize that this is probably going to cost and will take considerable time to work. There are quality debt consolidation firms capable of working with your credit card companies to reduce finance charges, eliminate late and other penalty fees and get your unsecured debt on a payment schedule that will fit into your personal budget.

Some firms claim to be able to “settle “ with your creditors for an amount substantially less than what you owe by setting up an account for you to pay into and accumulate funds that will be used to pay your creditors in full for a portion of what is owned as the fund accumulates adequate funds to make lump sum settlements .  This strategy can be very difficult during the time it takes to build up enough money in the account in order to settle creditors because they are not getting paid during this period of time and they are making collection calls and/or filing lawsuits. This also severely damages a debtors credit score before there is enough money accumulated to settle all creditors. When creditors are settled make sure the creditors report paid with a zero balance to all three credit bureaus .