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Credit Card Refinancing vs Debt Consolidation: Which Is Better?

Credit Card Refinancing vs Debt Consolidation
Jason Steele
Jason SteeleUpdated February 1, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Debt consolidation and credit card refinancing are two common methods you can use to repay debts you owe. Although they have similarities, debt consolidation and credit card refinancing are not the same, and one may be a better option for you, depending on your financial situation.Read on to learn more about credit card refinancing vs. debt consolidation to help determine which method makes the most sense for your needs.

What Is Credit Card Refinancing?

What is credit card refinancing vs. debt consolidation? With credit card refinancing, you take out a new loan or credit card — ideally with a lower interest rate — to pay off one or more of your existing credit card balances. The lower interest rate typically helps you save money so you can work toward paying off your debt. 

How Does Credit Card Refinancing Work?

Two of the most common ways to refinance credit card debt are by using a balance transfer credit card or taking out a personal loanA balance transfer credit card typically charges no interest on balances transferred from other credit cards for an introductory period of time, which might range from 15 to 18 months or more. During that time, you can work on paying off your debt without accruing additional interest. Most of these cards charge a balance transfer fee that’s generally about 3%, though some balance transfer cards have fees of 5%. Even with the fee, a balance transfer card could be worth the cost if you would be saving money overall. However, you generally need at least a good credit score to qualify for a balance transfer card.You can also refinance credit card debt by taking out a personal loan. Personal loans are flexible, which means you can use them for a variety of purposes, including refinancing existing debts. With a personal loan, you get a lump sum that you can use to pay off your credit cards. You then pay back the loan in regular monthly installments. Before you refinance with a personal loan, you’ll want to compare the interest rate of the loan with the interest rate of your existing debt. The average personal loan interest rate can be relatively high, but your existing credit card APR could be even higher. Personal loans may also come with additional fees. Make sure you understand the various pros and cons to personal loans to make sure this is the best option for you.Recommended: What Are the Steps to Checking Your Credit Score?

Pros and Cons of Credit Card Refinancing

There are advantages and disadvantages to credit card refinancing that you should consider when deciding whether to refinance your credit card debt. These include: Pros
  • You may be able to get a lower interest rate.
  • Your monthly payments might be lower, especially if you extend your repayment term.
  • You may be able to pay off debt faster because less of your money is going to interest. 
  • Some refinancing options, like balance transfer credit cards, have an introductory period where you pay little to no interest.
  • You can consolidate multiple credit card debts through refinancing and simplify payment. 
  • The interest-free period on balance transfer cards is for a limited time.
  • You may need to pay fees for balance transfer cards or personal loans.
  • If you are not motivated to pay off the debt, you could end up with even more debt.
  • You may need a high credit score to qualify.

Understanding Debt Consolidation

Now, what is debt consolidation vs. credit card refinancing? Debt consolidation is when you take multiple debts and refinance them into one new loan. It’s different from debt settlement, which is when your lender or creditor agrees to settle a defaulted or delinquent loan on modified terms. There are a number of ways to consolidate debt, including balance transfer credit cards and loans for consolidating your debt. You may also want to consider comparing debt consolidation vs personal loansWhatever method you choose, debt consolidation could help simplify your payments and make them easier to manage.

Credit Card Refinancing vs Debt Consolidation: Similarities

Credit card refinancing and debt consolidation have multiple similarities, and people may confuse the two terms. Here’s what they have in common. 
  • Both credit card refinancing and debt consolidation are methods of paying off debt.
  • You can use a balance transfer credit card to refinance credit card debt and for debt consolidation.
  • Likewise, you can use a personal loan for both debt consolidation and credit card refinancing.
Recommended: Paying Down Debt: Can You Use a Personal Loan to Pay Down Credit Card Debt?

Credit Card Refinancing vs Debt Consolidation: Differences

Despite their similarities, credit card refinancing and debt consolidation do have several key differences, and it’s important to understand them. 
Credit Card RefinancingDebt Consolidation
The main goal is to get a lower interest rate on a new loan.The main goal is to consolidate several debts into one debt to eliminate multiple payments.
Refinancing will usually save the borrower money because of a lower interest rate.Debt consolidation may not save the borrower money. It’s more about simplifying payments. 
A balance transfer credit card is one of the most common ways to refinance credit card debt.A personal loan is one of the most common ways to consolidate debt.

Is Credit Card Refinancing or Debt Consolidation Better?

Determining whether credit card refinancing or debt consolidation is a better option depends on your financial situation. Consider the amount and type of debt you have, what your main goal is, and whether you can get a lower interest rate with refinancing to save money.Also, keep in mind that in order to fully benefit from a balance transfer card, you’ll want to pay off your debt within the interest-free time frame. As long as you could do that, you might potentially save money on interest. With a personal loan, you can usually get more time to repay your debt — generally several years. Your monthly payments may be lower with a longer loan term as well.In the end, if you are overwhelmed by making multiple loan payments each month, debt consolidation may be the better choice for you. However, if you would like to lower your credit card interest rate and you’re confident you can pay off your debt before the interest-free introductory period ends, credit card refinancing may be the right option. Think through the different scenarios to help make your decision.

Personal Loans With Lantern

If you’re exploring the idea of refinancing or consolidating your debt with a personal loan, it’s wise to shop around for a loan with the best rates and terms. Lantern makes the process easy. By filling out one simple form, you can get offers from multiple lenders all at once in our online marketplace. It’s quick and convenient.

Frequently Asked Questions

Which is better, credit card refinancing or debt consolidation?
How does credit card refinancing work?
Can you use a personal loan to consolidate credit card debt?
Photo credit: iStock/tommy

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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