The choice between debt consolidation and credit card refinancing can often be quite important, even if they share a number of similarities. To make sure that you’re making the right decision, it’s wise to learn more about the details and differences of your two options.
Are they the same?
Many people use the terms interchangeably and, while both do tend to achieve similar goals, debt consolidation loans and credit card refinancing are often different in the way that they can help an individual to achieve them.
Because of this, both tend to have their own benefits and disadvantages – which is why it can often be so important to do your research to see which one is ideal for your current situation. Mainly, if you’re looking to pay off your credit cards, consolidating your debts into one new loan may be the best move for you. On the other hand, if you would rather have a lower interest rate on your debts, you may want to consider refinancing.
Facts about debt consolidation
Generally, if you choose to consolidate your existing debts, you’ll be transporting multiple repayments onto one loan. This can often make your debt much more manageable and, in some cases, help you to get a lower interest rate on your payments too – which can often save you quite a bit of money.
While it can sometimes be possible to move several small debts onto one credit card with a high credit limit, most choose to consolidate their credit card balances with a personal loan. Usually, they offer a fixed interest rate, fixed monthly payments, and a specific loan term – meaning that you’ll generally be required to pay the same amount each month until you are debt-free.
Advantages of debt consolidation:
- Fixed monthly payments and interest rate
- Definite payoff term
- A (possibly) lower interest rate
Drawbacks of debt consolidation:
- Origination fees (with some lenders)
- Involved application process
- No payment reductions
Facts about credit card refinancing
Credit card refinancing (often known as balance transfers), on the other hand is usually just moving your debts onto one card that offers a better pricing structure than the one you’re currently having to deal with.
For example, you could move a balance of $1,000 from a credit card with 15% interest to one with 12%, reducing 3% from your overall costs. Many companies also offer a 0% introductory rate too – and while this may not last forever, it can often be a great bonus for those who want to reduce their payments by as much cash as possible.
Usually, if you want to lower your interest rate and reduce your monthly payments, refinancing might be the best option for you – although keep in mind that it’s not usually as effective as consolidation when it comes to helping you to get out of debt.
Advantages of credit card refinancing:
- Introductory 0% interest rates with some cards
- Fast application process
- Better interest rate when the introductory rates end
Drawbacks of credit card refinancing:
- Variable interest rates
- Balance transfer fees
- The introductory 0% interest rate isn’t likely to last
How to find the right deal for you
Once you’ve decided on which one will be best for you, you’re likely to want to find the right policy for your needs. Fortunately, there are a number of good personal loan offers for debt consolidation and balance transfer credit cards out there – in most cases, all it takes is a little time and research to see which one is ideal for you.
When you find some favorable lenders/cards, the next step should be to compare them. Often, this will help you to see which ones offer the best deal for the lowest costs.