If you are one of the millions of Americans dealing with credit card debt, it may seem impossible to figure out the best way to dig yourself out of that large financial hole. One way to deal with credit card debt is to refinance. While it might seem like a complicated process, it actually isn’t at all!
Refinancing credit card debt simply means paying off your current debt-load with a new loan. What refinancing means is that you will take out a loan to pay off your debt, and then owe payments to your new lender. The ideal outcome of refinancing your credit card debt is to take on debt that you can more easily manage and secure a debt situation that is better than the one you found yourself in thanks to irresponsible credit card spending.
To make sure that you refinance your credit card debt you have to approach the process responsibly and with as much information as possible. Continue reading to get that information and learn the do’s and don’ts of refinancing your credit card debt.
Do: Take Inventory of All of Your Debt
Your credit card debt might be the debt that most weighs on your mind, but that doesn’t mean it’s the only debt that you should be keeping track of. Are you still making car payments? Are you still paying off a large appliance? Have you yet to pay off your student loans? If possible, you might want to see if you can get a loan that will allow you to pay off all of your debt at once. After that, you will just have to focus on paying off your one new loan with an improved interest rate. While taking stock of your loan, it is important to find out if you are already enjoying favorable interest rates on any of your debt, because if you are, you might be able to pay that off on its own.
For many people, debt begins to snowball because they are not paying as close attention to the particulars of your debt as they should. Taking inventory is a good way to counteract that lack of knowledge. To take control, you have to know the facts. This is a great way to start.
Don’t: Make New Purchases on a Balance Transfer Card
One way to refinance your credit card debt it to take advantage of your ability to open a balance transfer card. What that means is, opening a new card with more favorable interest rates, and transferring all of your existing credit card debt onto your new card. While this is a fairly common way to refinance credit card debt, you have to make sure to exercise serious self-control to not add to your debt by making purchases on your new card.
The reason why transfer cards are so valuable is because often times, new cards will offer a 0% APR period as a promotion. Any new purchases that are not covered by the promotional 0% APR period will end up being what your monthly payments are put towards. That means that your existing debt will still be sitting around as you pay off the new purchases you are making on your new card. Additionally, if you miss a payment on your new card, your 0% APR promotional period could be cut short.
When you have decided to refinance by using a transfer card, try to buy your essentials with cash or a debit card until you get rid of your outstanding debt.
Do: Look into Debt Consolidation Loans when Refinancing A Credit Card
This is probably the most common way to refinance credit card debt, but you have to make sure you do not enter into consolidation loan debt without reading all of the fine print and answering some key questions.
First, it is crucial to make sure that any new loan you take on offers a better – or lower – interest rate than that of your credit card or cards. After all, that is the only reason to take out a consolidation loan. If you have good credit, this shouldn’t be too hard. If you don’t, it might take some extra legwork to find the right kind of loan that will actually benefit you.
Beyond that, you should make sure to be aware of the new payment plan that you will enter into with your new loan. This includes finding out factors like the fees and penalties involved in the loan. You have to find out if you could be penalized for paying off the loan early.
As long as you get the answer to these two questions, and they are favorable to your situation, a debt consolidation loan could be the answer to your credit card debt problems.
Don’t: Take Out Home Equity Loan To Pay off Credit Card
As you search for loan options to help refinance your credit card debt, you might find yourself tempted to take out a home equity loan as a possible option. Hope equity loans are tempting because they can allow you to take out large amounts of money, but you should avoid this option if you can. A home equity loan is a secured loan that would require you to put your house up as collateral. That means, if you fail to repay your loan, your lender may decide to foreclose your home.
Avoid taking out a home equity loan to pay off your credit card debt. Even if you believe that you will be able to pay off the debt, the risk simply isn’t worth it. Credit card debt is one thing, losing your home is something else entirely.
Now that you know some of the basic do’s and don’ts of refinancing your credit card debt, get out there and start working your way towards a brighter financial future.