Credit Card Refinancing vs Debt Consolidation
The perks of owning your first credit card can be really beneficial! But life hits hard when you have started to make those monthly repayments or you let your credit card debt get out of control. Not to mention when the reality of the high interest rates hit.
How do you settle your credit card debt when the high interest rate is killing your repayment ability? One of the following two options might just be the solution you are looking for. Let’s look at credit card refinancing vs debt consolidation.
The Different Types of Debt
In the U.S. there are 5 predominant types of personal debt. Personal debt is to the account of a natural person. Someone is accountable to repay it.
Here is a short list and description of each:
- Personal loans – These loans are unsecured, so nothing of value serves as security for the loan. You can use the loan for anything you want to.
- Auto loans – These loans are used to finance a vehicle. This type of loan is secured by the vehicle it finances. Interest rates are typically lower than personal loans because the loan is a secured form of debt.
- Credit card debt – Credit cards serve a great purpose but charge high interest rates for the service. It’s generally also an unsecured form of debt. Nothing serves as security against the amount of debt.
- Mortgages – This form of debt finances the purchase of a property (a home). The debt is secured by the property it finances. It requires a down payment (an upfront deposit) which secures the debt against fluctuations in the market price of the property. Both these security measures cause mortgages to have low interest rates when compared to other forms of debt. There are also mortgages available for foreign nationals like yourself if you qualify.
- Student loans – This debt helps to finance tertiary education. It has differing terms and conditions regarding interest rates, repayment terms, and grace periods for the accumulation of interest.
For the purpose of this exercise, we’ll look at credit card debt, its pesky interest rates, and how to find a way to get rid of it. We’ll weigh the options between credit card refinancing vs debt consolidation so you can find the right solution for your needs.
What is Credit Card Refinancing?
You may have heard of the term credit card refinancing. But do you know what it means? Some people also refer to it as a balance transfer and essentially that is exactly what it is. Refinancing your credit card means you take another cheaper credit card and then you transfer the owed balance.
You might have multiple credit cards and the repayments are too high for you to manage. You can consider credit card refinancing as a possible solution. Look for a credit card with an interest rate lower than your current cards. Or better yet, find a credit card refinancing deal in which there is a 0% interest for the first 12-18 months. Apply for it and transfer your balances from your previous credit cards to the new cheaper card.
Just remember, your debt isn’t settled yet. You’ll still need to repay it as soon as you are able to. Do this with consistent monthly amounts as your budget allows it. Make use of the time in which there is 0% interest on your outstanding balance to help speed up the process and get as much settled before interest starts accruing.
Advantages of Credit Card Refinancing
Here are the upsides about credit card refinancing. You’ll have a glorious first 12-18 months (depending on the terms and conditions of your lender) in which 0% is added (or rather not added) to your debt. You don’t have to service interest and can use all your money to just settle the debt.
A credit card balance transfer (refinancing) requires relatively little time. You can search, apply, and transfer the amounts over the internet. You can finish this whole process within about a day if all goes well. Just make sure you look for reputable credit card suppliers (lenders) who have good customer reviews. You don’t want to get scammed by some scheming criminal.
Disadvantages of Credit Card Refinancing
The initial grace period of 0% interest is wonderful. But after that, you’ll simply be in the same situation. The credit card will once again have just as high interest rate as your previous cards. These types of credit cards also have expensive balance transfer fees which add to your debt. A percentage of the total balance transferred is calculated and charged to your account.
You may also start to enjoy the grace period with a zero interest rate. This complacency may cause you to only pay the minimum amount required which won’t get you ahead of the game. Afterward, when the grace period concludes, you are back in the same situation without making a noticeable difference in your debt. Most credit cards are subject to floating interest rates too. The interest rate on your credit card will increase when the regulators increase the interest rates.
What is Debt Consolidation?
Debt consolidation is when you take out a loan with a lower interest rate, better payment terms, and/or cheaper monthly installments to repay your existing forms of debt. You basically take a cheaper and better loan to settle your more expensive forms of debt.
There are many types of loans available for debt consolidation, but the most common is a personal loan. It’s your decision whether you want to take a secured or unsecured loan. Many people don’t have something to present as security for their debt and rather opt for an unsecured personal loan. The lender disburses the loan into your bank account with which you settle your credit cards. You no longer have to repay the credit card companies. You only make one payment to your new lender.
Advantages of Debt Consolidation
These advantages may tip the scales in the credit card refinancing vs debt consolidation battle towards debt consolidation. Most personal loans have fixed interest rates. This helps you to budget with greater ease. Your monthly installment won’t be more expensive when the interest rates are raised by the government.
This loan also has set payment terms. You have monthly targets and ultimately an end date to work towards. You can’t cause more debt like with a credit card and get yourself deeper into a muddy situation. This keeps you on track as you settle your debt over time. You might also be able to get an even lower interest rate than what is ultimately charged by credit card lenders.
Disadvantages of Debt Consolidation
Some loans have origination fees which add to your debt owed to your new lender. Some loans also have lengthy application processes, where credit card applications generally tend to be quick. Some people also don’t enjoy the fixed monthly installments. Credit card repayment amounts decrease as your owed balance decreases. This is not the case with debt consolidation.
Remember, consolidation loans may pay off your credit card debt, but it doesn’t cure your spending habits. You’ll have to resist from using your newly paid off credit cards before you end up in even more debt. A good idea could be to keep your credit card accounts but destroy the cards to stop you from spending any more money.
Other Important Topics
There are a few smaller details about these topics that shouldn’t be overlooked. Let’s take a closer look so you don’t miss them.
Refinancing with a Balance-Transfer Card
It’s great to find a credit card refinancing option with a cheaper interest rate. Don’t take too long though. The offered deal may expire soon and cause you to lose out on a good opportunity. Respond to the offer before it expires. And don’t spend any money on your old credit cards until your disposable income is enough to cover the monthly credit card repayments.
Consolidating Credit Card Debt with a Personal Loan
A personal loan is a great solution to help with settling expensive credit card debt. Some personal loans have great terms and conditions like zero origination fees and low interest rates. Some personal loans also only perform a soft credit check to determine the interest rate offered to you. Stilt is an option just like that, specially tailored for foreign nationals like yourself.
How to Take a Personal Loan with Stilt
Stilt offers a low Annual Percentage Rate on its loans starting at 7.99%. You also don’t need a co-signer (someone who accepts responsibility for the debt with you). Foreign nationals and people with fair credit only have to meet their simple eligibility criteria.
You can apply online for a loan up to $25,000. Make sure you submit all the necessary paperwork with your application.
Receive Your Offer
Someone will contact you within 24 hours of your application. Please supply any additional information they may require. The strongest applications get the best offers. You’ll soon receive your offer and a promissory note to sign. Your Stilt loan offer’s interest rates should be cheaper than your expensive credit card debt. Please sign and return the promissory note when you’re ready to accept the offer.
The loan takes 2-3 business days to disburse into your account. Use the funds to settle your credit card debt. You can set up an auto-pay option online to help you make timely monthly loan installments.
Credit Card Refinancing vs Debt Consolidation: Which is Best for You?
Ultimately, you’ll need to weigh up your options. The end goal is to find the best and cheapest way to settle your debt. Credit card refinancing is a quick fix which you’ll need to manage well. Because if you don’t you will be worse off than before.
Debt consolidation with a personal loan helps you to budget with greater ease. You know what to expect and there are fewer fees. The right lender will even charge you zero origination fees. You can determine the repayment terms and the interest rates are fixed. Find the best and cheapest option and apply.
Credit card debt is a sticky situation and the above-mentioned options may be your best way out. Find the best option for your situation between credit card refinancing vs debt consolidation and start working your way to a healthy credit lifestyle. Apply today and remember, use your credit cards with good discipline.