9 Ways To Refinance Credit Card Debt
Posted on December 4, 2020 in Credit Cards
Once you’ve gotten yourself into credit card debt it can be hard to escape. If you spend more than you can pay off, you get stuck making the minimum payments while your interest piles up.
If you are looking for ways to help refinance and pay off your credit debt, here are nine things you can try.
One of the first things you can try to refinance your credit card debt is a personal loan. You can usually get this kind of loan from your bank or a lending network willing to loan you the money.
If you get a secured loan, you will need to have assets to back it up as collateral. This type of loan will generally allow you to have a lower interest rate.
If you get an unsecured loan, the interest rate may be higher because there is no collateral backing it up.
Additionally, this process may require you to pay fees to obtain the loan for refinancing. However, you’ll only have to deal with one payment every month, so one plus is you won’t forget to pay one of your balances.
A lot of personal loans can also be taken out with fixed interest. This way, your interest will not increase after the introductory period.
Pulling From Retirement
Another option for refinancing credit card debt is using your retirement savings. You might be able to borrow money against your 401k fund. If you use this method, you will be paying interest into your retirement instead of a credit lender. This route also doesn’t require a credit check and it won’t affect your credit score.
On the downside, you might not be able to make contributions to your retirement during the period of your loan. You also won’t earn any investment return during this time.
You could also use your life insurance plan to refinance your credit card debt. If you have whole life insurance, you may be able to use it to get a loan. However, term life insurance expires and does not have any cash value after a certain amount of time.
Your life insurance will act as the collateral for your loan. You don’t have to apply for this kind of loan and it also will not affect your credit score. Depending on the value of your policy, you can determine how much money you can borrow from it.
One of the more common methods of refinancing is through home equity loans. A lot of people with credit card debt are also homeowners with equity in their houses. The equity that you have is how much your home is worth minus the total amount you owe on your mortgage.
You can take out a home equity loan and immediately pay off your credit card balance. Then, you will make larger payments on your mortgage every month. You might also be able to use any rental property that you have equity in.
The cons of this type of refinancing option are that if you miss payments, you could lose your house. There may also be closing costs for this kind of option. But, you might not need good credit to qualify for this kind of loan. You should evaluate how much your closing costs will be against the amount of money you owe your mortgage company.
Auto Refinance Loans
If you don’t want to use your home for a loan, you could also use your car. The car is used as collateral so you are likely to get a better interest rate. For this option, your car’s value needs to be more than the loan. You can do this through a credit union, bank, or even an online lender.
The same rule applies to this loan as the home equity loan. If you miss payments, you risk losing your car. You could also end up being upside down on your auto loan if you owe more money on the car than its resale value.
This is another very common option for people with credit card debt. This is a way to refinance your debt with another credit card. This needs to be done in a specific way and only if your credit company allows it. Sometimes transferring your balance will require fees to be paid before the transfer.
Essentially, you’d open what’s called a balance transfer credit card, and use that credit card to “pay off” your debts so that all of your debt is now consolidated into one account, with one (generally) lower interest rate, and one monthly payment.
If your credit limit of the new card is not enough to cover your balance, you can try calling the company to see if they are willing to increase your credit limit.
This can be especially helpful if the new credit card offers no interest for a certain period of time. This will allow you to get ahead on your payments without dealing with additional interest piling up. However, nothing is stopping you from just paying the minimum amount on the new card, so if you’re looking to consolidate your debt and pay it off, try to pay an amount on your new balance transfer card comparable to what you were paying when all the debt was still separate.
Credit card rates are also variable. This means the interest could go up after some time and could cause you to end up in more debt than you started with. Most credit cards have a 12-18 month period of no interest. Then, the interest is typically between 16%-25%. A balance transfer is only really worth it if you can pay off either a majority of or the full amount during the no-interest period.
Debt settlement is a less popular option because it can be tricky. Debt settlement companies will allow you to make one payment to them. They can then negotiate with the credit card company to get a lower payoff amount for you. During this time, you stop paying your credit card and you will likely get collection calls. Your credit score will take a dive for this but you can rebuild it eventually with good spending habits.
This process can take a long time and it can involve a lot of risks. You should consider other options before you try this one.
Ask Your Family
This can be awkward and cause a lot of tension within your family. Owing loved ones money can cause a lot of problems for you down the line. If you have a family member who has the money to lend you and is willing to do it, you won’t have to go through a credit check and they likely won’t make you pay interest.
If you miss a payment, it won’t affect your credit score but it could have other negative ramifications. Make sure you are prepared to be responsible with the money your family gives you. You should make paying them back a priority.
Debt Management Plans
This is an option to get started on when finding a way to pay off your loans. To do this, you will need to get in contact with a credit counseling agency.
You will make a plan for paying off your credit card debt, and the credit counseling agency will typically negotiate a payoff plan on your behalf. You’ll plan on paying that amount to the agency that you went to and they will then pay your credit card company. This allows you to pay fewer fees and get a lower interest rate.
This may involve closing your accounts which will harm your credit score. You can also call your credit card company and ask them about their debt relief options that are available.
The first step to tackling credit card debt is to actually take the first step.
It can be intimidating to consolidate credit card debt, but the most important thing is to actually take the first step toward getting it taken care of and seeing what loan amount you qualify for.
Whether you only have a couple thousand dollars in debt or if your credit card debt is the price of a small condo, working toward refinancing will ultimately save you money with all the cost of interest you’ll be saving on.
Credit card refinancing requires strategy and a long term plan, so whichever option to go with, make sure you consider how much debt you have, as well as your credit history and your credit score. Always consider multiple options and don’t just go with the first one that looks good — you may end up with a better deal if you explore a little!
For more resources and guidance, check out the Turbo Finance blog for all the info you need to master your money!
Related blog posts
Need expert financial advice?
Let TurboFinance connect you with the best consulting services and resources to help you take control of your finances and find a path to build wealth.TAKE CONTROL OF YOUR DEBT