How to Refinance Credit Card Debt and Pay It Off Faster

Word to the wise: the sooner you’re able to pay it off, the better.
Last updated May 29, 2020 | By Sarah Li Cain
refinance credit card debt fast

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Dealing with a bunch of debt? This could be a good time to figure out how to refinance your credit card debt so you can pay it off faster.

No matter if you’re tackling a huge chunk of debt for the first time, deciding to get rid of it is a sound choice. After all, being able to manage your financial situation well is going to help you feel less stressed and better equipped to reach other goals, like saving for a house or putting money into retirement funds.

It can seem overwhelming at first, but learning the best way to refinance credit card debt is just a matter of picking the right strategy for you. Here are some ways you can refinance your debt and determine which strategy is best suited for your situation.

What is credit card refinancing?

Credit card refinancing is when you transfer existing credit card debt to another type of loan.

How it works: Typically, you’ll transfer a balance to another credit card or other loan that offers a lower APR. For example, if the APR with your current card is 22% and you decide to transfer the balance to another credit card with a 16% APR. In this case, you’re saving yourself 6%.

The goal of credit card refinancing is to save money on interest so that you can make larger payments. Doing so means you could get out of debt faster.

Debt consolidation is another term that’s similar to credit card refinancing. In this case, you’re taking several loans — or several credit card balances — and moving them to another type of loan. That way, you’ll be making only one monthly payment to be able to pay it off faster, assuming you can get a more favorable rate.

Options for refinancing credit card debt

As for how to refinance credit card debt, there are several different ways to do so:

  • Use a balance transfer credit card
  • Consider a personal loan
  • Use your home equity
  • Borrow money from your 401(k)
  • Consider a debt management plan

All of these options can work, but you’ll want to consider things like your credit score and history, how much cash you have on hand, and overall debt load. You also want to consider how motivated you are to pay off debt as fast as you can or if you need some help.

Each of these options have advantages and consequences — that is, if you fail to make on-time payments. Let’s explore all of them so you can decide which one is best.

Use a balance transfer credit card

Consider a balance transfer if you feel you can trust yourself to get a new credit card and not spend more money on it. Ideally, you want to find a card with a 0% introductory APR. These types of cards offer a period of time where you won’t be charged interest. Some of the best ones offer over a year at the intro APR, like the Chase Freedom Card.

To use a balance transfer, most card issuers require you to have a decent credit score to qualify for an introductory APR. As long as you pay off the balance during the introductory period, you could save boatloads of cash in interest. Otherwise, you’ll be subject to their regular APR once that period is over.

There may also be a timeframe for when you can qualify for the 0% APR. If you decide to open the Barclaycard Ring® Mastercard®, cardholders need to make a balance transfer within 45 days of account opening to qualify. Make sure to check the fine print when deciding on a new credit card so you’re well within their requirements for their 0% introductory APR offer.

Even if you don’t qualify for a 0% APR credit card, it’s still possible to refinance credit card debt by finding a card with a lower APR. Even if it’s a few percent lower, it’s better than nothing.

Keep in mind many card issuers charge a balance transfer fee, which is usually around 3%. Some cards also charge an annual fee, so you’ll want to figure out if it’s worth it to fork over the cash.

This method is best for those who have a small amount of debt and can pay it off within a year or so. That’s because you’re limited in how much you can transfer over, which is typically up to your new credit limit.

Pros Cons
  • No need to pay interest if you qualify for intro 0% APR
  • Transfer amounts can’t be higher than credit limit
  • Typically has a balance transfer fee
  • You may not qualify if you have a low credit score

To find the best cards, check out our list of the best balance transfer cards. Be sure to take note of the recommended credit score needed to qualify.

Consider a personal loan

A personal loan gives the opportunity to borrow a certain amount of money so you can consolidate your credit card debt. These types of loans typically offer a lower interest rate than your credit card so you can pay off debt faster. However, you’ll likely need to have excellent credit to qualify for the best rates. Some lenders also charge what’s known as an origination fee, which you’ll need to pay for the privilege of taking out a personal loan.

Using a personal loan for debt consolidation can help you manage payments since you’re only making one payment instead of multiple ones. If you have a lot of credit card debt, this is a great option as it’ll keep you more organized and paying at a lower rate. Since most personal loans allow you to borrow more, it’s best if you have a large amount of debt to pay off.

If you plan on paying off your debt in less than five years, a personal loan may not be the best choice. You may be better off using a balance transfer or making higher monthly payments toward your existing credit card. That’s because you may pay more for a personal loan if your lender charges an origination fee, and you don’t have to worry about the application processing taking a hit on your credit.

Pros Cons
  • You’ll have a longer time to pay off debt
  • Rates may be lower than a credit card
  • Some lenders may charge an origination fee
  • Lowest rates reserved for those with excellent credit

You can find some of the best personal loans and rates online, at your local credit union, or at a bank. Look at your monthly payments to make sure you can afford them.

Use your home equity

If you own a home, you can tap into your home equity and take out a loan or line of credit.

A home equity line of credit (HELOC) works much like a credit card. You can borrow as much as you need, up to a certain limit. During the draw period — a set amount of time the lender gives you to borrow up to your credit limit and draw on the amount again when you repay the principal — you’ll make interest-only payments on the amount you borrow. Once this period is over, you’ll then need to repay the entire loan, including the principal.

A home equity loan, on the other hand, gives you a lump sum loan amount with a fixed interest rate, and you pay it back in an agreed amount of time. Both types of loans allow you to use that money to pay off your credit card debt.

A home equity loan or HELOC is best for those who have a lot of credit card debt to refinance and want to pay it off over a longer period of time — typically 10 years or more. How much you can borrow depends on your home equity.

To determine your home equity, take your home’s current value and subtract how much you still owe. For example, if your home is valued at $250,000 and you still owe $175,000, you have $75,000 worth of home equity. Lenders will then take this number to determine how much you can borrow, which is typically up to 85% or up to $63,750 using the above example.

However, the lowest rates tend to go to those with the highest credit scores. You also risk losing your home if you can’t keep up with payments.

Pros Cons
  • Rates are typically lower than credit cards
  • Can borrow large sums of money
  • You could lose your home if you fail to make payments
  • Best rates go to those with high credit scores

Shop around at your local credit union or bank to find the best rates. There are also plenty of online lenders, which sometimes offer better rates.

Borrow money from your 401(k)

Borrowing money from your 401(k) isn’t the best choice when it comes to refinancing or consolidating credit card debt.

First, you could significantly impact your retirement, and there may be tax implications. If you’re younger than 59.5 years old, you could pay taxes on the amount you borrow.

Secondly, you’re only permitted to borrow up to 50% of your account balance, up to $50,000. The IRS also requires you to pay back the loan in five years.

Unless you’ve exhausted all options, it’s probably best to avoid this one. The upside is that a 401(k) loan doesn’t require a credit check, and rates may be lower than credit cards, though that depends on your employer-sponsored plan.

Pros Cons
  • No credit check to secure the loan
  • Rates may be lower than credit cards
  • Could impact your retirement
  • Potential tax implications
  • Need to pay back loan in five years

If you do go this route, talk to your 401(k) provider for further details.

Consider a debt management plan

There is no shame in asking for help. If you owe a lot in credit card debt and can’t seem to keep up, consider credit counseling. Nonprofit organizations can help you create a debt management plan and work with your creditors to create a financial plan to pay back your loans.

Here’s how it works: you deposit money with the credit counseling organization, and they use that to pay your creditors on time. There are usually fees for this service, which can include an ongoing monthly and set-up fee.

Using a debt management plan could be worth it if you don’t trust yourself to make on-time payments and you want someone to negotiate lower rates on your behalf. In many cases, these organizations can help you negotiate lower monthly payments or interest rates and pay off your debt within 36 to 60 months.

If you decide to go this route, be sure to thoroughly vet your options. Search for one that is accredited by the National Foundation for Credit Counseling (NFCC). Sadly, there are some shady organizations out there, so be sure to research your options before committing.

Pros Cons
  • Someone helps negotiate a lower rates or monthly payments on your behalf
  • You make a single payment and the credit counseling agency takes care of the rest
  • There may be fees to use this service
  • Not all organizations are created equal

How to pay off credit card debt faster

Paying off credit card debt faster can be done through a combination of lowering interest rates, increasing your monthly payment amount, and making more payments. If possible, stop using your credit cards to avoid racking up more debt.

Adding more money to your debt repayment is as simple as making extra payments. Start tracking your income to understand where your money goes each month to see where you can cut back and apply the difference toward your debt. If you’re ambitious, consider earning more money by working overtime shifts or dedicating a few hours a week to a side hustle.

As long as you have a solid plan in place and are committed, it’s possible to pay off your debt faster.

Is refinancing credit card debt a good idea for you?

Credit card debt comes with some hefty interest rates compared to other kinds of debt. In other words, you’re going to pay a lot more for your loan if you keep your current credit card and stick with making only the minimum payments.

Whether you have excellent or fair credit, consider refinancing or consolidating credit card debt to see if you can lower your rates. Doing so could help you save hundreds or thousands of dollars throughout the lifetime of your loan.

Unless you only have a few hundred dollars on your credit card, it’s usually a better idea to refinance your debt. You’ll want to consider the trade-offs, too. For example, if you take out a home equity loan, you could risk losing your home if you’re not careful with repayments. Or you may end up paying a higher fee if you take out a personal loan with an origination fee.

At the end of the day, understanding why you got into debt in the first place will help prevent debt from happening again. It also requires you to have a solid view of your financial picture, including other goals, to help you figure out if refinancing is the right choice for you.

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