Credit cards are fun. Cardholders enjoy endless benefits, from a line of credit for a given period to discounts on various items and complimentary airport lounge entries. However, credit cards should be used with utmost care as there is often the chance of overspending due to their inherent nature. Credit card debt is a significant issue in the US, so debt consolidation can be a good alternative. The two main options for repaying debt are debt consolidation and credit card refinancing. This blog will examine and compare credit card refinancing vs debt consolidation and identify which best suits your financial needs!
Credit Card Refinancing vs Debt Consolidation
Here’s a table on credit card refinancing vs debt consolidation:
| Aspect | Credit Card Refinancing | Debt Consolidation |
| Objective | Negotiating new terms for existing credit card debt | Combining multiple debts into one lower-interest loan |
| Interest Rate | Typically involves transferring to a lower or 0% APR card | Lower-interest loan obtained to pay off existing debts |
| Monthly Payment | May vary depending on the terms of the new card | Single set regular monthly payment |
| Repayment Term | May vary depending on the new card’s terms | Fixed repayment term |
| Number of Accounts | Involves transferring balance(s) from one or more cards | Consolidates multiple debts into one account |
| Potential Benefits | Lower interest rate, simplified payment schedule | Lower overall interest, simplified payment schedule |
| Suitability | Effective for smaller debt burdens or single credit card debt | Suitable for larger debt burdens or multiple debts |
| Risk | Risk of higher interest rates after the introductory period | Risk of accruing more debt if spending is not controlled |
What is Debt Consolidation?
A financial strategy called debt consolidation helps you merge several loans into one. If you have multiple debts, such as credit cards, store cards, auto loans, medical expenses, and personal loans, you receive several bills each month, often at various times. Also, each creditor may have different terms and rates.
Pros and Cons of Debt Consolidation
Loans for debt consolidation are not a quick remedy. Terms can occasionally run up to seven years, and you still have to pay them off.
However, weigh the advantages and disadvantages below to determine whether consolidation makes sense.
Pros
Potentially reduced interest rate.
Depending on the length of your loan, pay it off sooner.
Sort out your debts.
Cons
Often require excellent credit to qualify for a cheaper interest rate.
Check your report for credit once more.
Fees and expenses upfront.
What is Credit Card Refinancing?
Taking out a personal loan to pay off your credit card debt is known as credit card refinancing. You will now only have to worry about one loan and one payment. Refinancing your credit card debt may make sense if you get a lower interest rate or need to lessen your monthly payment.
Pros and Cons of Credit Card Refinancing
It is vital to weigh the advantages and disadvantages of credit card refinancing to make an informed decision.
Pros
Could reduce your interest rate: Based on your credit history, you may be eligible to pay an interest rate less than what you have been paying. This may help you pay off your loan more quickly and save money on interest.
Lower monthly payments: Refinancing allows you to extend the repayment term, lowering your monthly payment and easing your financial burden. Remember that you will ultimately pay more interest if you select a longer repayment term.
Consolidate many cards: Refinancing your credit cards into a single loan can help you manage your debt more easily.
Cons
If you have poor credit, it could be difficult to qualify: Generally speaking, your credit must be outstanding to excellent to be eligible for a personal loan. Although some lenders provide debt consolidation loans for people with poor credit, the interest rates on these are often higher than those on loans with good credit.
May incur costs: Certain personal loan lenders impose costs, such as origination fees, which raise the total cost of the loan.
Doesn’t lower debt: If your interest payments are reduced, you remain liable for the full amount of your initial loan. Furthermore, if you don’t modify your financial habits, you can find yourself in debt again.
If you choose to refinance your credit cards through one of these loans, it’s crucial to consider the total cost of the personal loan. This will help you budget for any additional costs.
Conclusion
Refinancing or consolidating the credit card debt could make financial sense. When deciding between credit card refinancing vs debt consolidation, it makes sense to go by what works best within your financial situation. If you have less credit card debt, it might be wise to transfer balances onto a 0% APR credit card; conversely, consolidating multiple high-interest loans into a single personal loan can help simplify life and allow faster repayment of debts.
A personal loan from Beem can be an excellent idea if you have small financial requirements for paying off or consolidating credit card debt. It is hassle-free and has easy repayment options. Try Beem and move one step closer to financial independence.
