When Should You Refinance Credit Card Debt?
People who are struggling with credit card bills and other consumer debt may hear about a lot of options for debt relief floating around. Bankruptcy, debt settlement, debt consolidation, and credit card refinancing are all potential routes for debt relief, and the best option for each debtor depends on the amount and type of their debt as well as their income and other financial circumstances. The economic effects of the COVID-19 coronavirus pandemic are only adding to the difficulties faced by American debtors. If you are facing mounting credit card debt and wondering whether credit card refinancing is the right move for you, read on. Speak with a dedicated California bankruptcy and debt relief attorney about your options for financial relief.
What is Credit Card Refinancing?
Credit card refinancing is the process of moving your credit card balance from one card or lender to another. The goal is to find a lower interest rate and possibly combine multiple balances into a single piece of debt, for ease of payment. Refinancing can take one of several forms. The first typical approach involves transferring the balance of one card (or multiple) onto a different, new card to take advantage of the introductory 0% APR rate on the balance transfer card. The second major method for refinancing involves taking out a loan to repay the credit card debt, on the assumption that the interest rate on the loan is lower than the interest rate on the credit cards. Taking out a loan to pay off multiple credit cards is generally called debt consolidation. Ultimately, the goal is to owe the same amount but with a lower interest rate.
When is Refinancing a Good Option?
There are a few considerations to keep in mind when deciding whether to conduct a credit card refinancing. Some of the considerations to keep in mind include:
● Interest rates. The point of refinancing is to wind up with a lower overall interest rate. If your current credit card interest rate is lower than the rate on the balance transfer card, or the rate that you would be charged if you secured a loan, then there is no point in refinancing. Additionally, the beneficial interest rates on balance transfer cards are often introductory, expiring after a year or less. Make sure that the savings of a year of lower interest are worth the other fees and costs, knowing that the rate is going to jump again. If you are able to pay off the entire balance during that period, you are more likely to save a lot of money by refinancing.
● Transfer fees. It may be tempting to continually transfer balances to new cards to continually take advantage of introductory APRs, but banks put measures in place to avoid this. Balance transfers often involve costly fees, averaging around 2.7% of the balance but sometimes much higher. Your debt relief attorney can help you do the math to figure out whether the amount you save in interest over time offsets the cost of the transfer fees. Likewise, personal loans may charge an origination fee for processing. Multiple transfers or loans will only compound this issue.
● Refinancing limits. Balance transfer cards often have a limit on the starting credit. You cannot transfer a balance in excess of the credit limit, although you could split the balance and owe a lower interest rate on at least a portion of the credit card debt.
● Credit score. Getting that 0% introductory rate often depends on having a solid credit score. If your credit score is low and you are unable to get a favorable interest rate on the new card, you might not benefit as much from credit card refinancing.
Call a qualified debt relief attorney to find out if credit card refinancing, debt consolidation, or some other form of relief is available to help you get out from under credit card debt.
Speak With an Experienced Southern California Debt Relief Attorney
If you’re struggling with debt and considering bankruptcy and other debt-relief options, please contact Rounds & Sutter for a free, confidential consultation. With offices in Ventura, Santa Barbara and Westlake Village, we represent clients throughout Southern California, offering smart, compassionate legal counsel in the face of life’s challenges.