Although both credit card refinancing and debt consolidation share a lot of similarities, the correct choice between Credit Card Refinancing and Debt Consolidationis very important.
Credit Card Refinancingwhich is also known as balance transfer is a process in whichcredit card balance is moved from one card to another that has a more favourable pricing balance. More than anything else, credit card refinancing is for lowering your interest rate. When compared to debt consolidation, it is less effective if you wish to get yourself out of debt simply because it only moves a loan balance from one credit card to another.
The advantages of credit card refinancing are:
- Better interest rates after introductory rates end
- With some cards, introductory rate is 0%
- Quick application process
Unfortunately there are some drawbacks of Credit Card Refinancing and they are as follows:
- Balance transfer fees
- The introductory 0% interest rate might not last
- Variable transfer rates
Debt Consolidationis more about moving several credit card balances over to a single loan withonly one monthly payment. Sometimes, consolidation can be accomplished by transferring several small credit card balances over to one credit card with a very high credit limit. This process is usually done with the help of a personal loan. Personal loans are unsecured, but these offer a fixed interest rate along with a fixed monthly payment and a specific loan term. This concludes that you will have the same monthly payment at the same interest rate every month, until the loan is completely paid.
If you wish to eliminate your credit card debt, debt consolidation would be a better choice as this is paid at the end of the term whereas credit card refinancing keeps you in a revolving payment arrangement in which there is potentially no end.
Advantages of debt consolidation
With that being said, let’s check out:
- Monthly payments and interest rates are fixed
- Definite payoff term
- Lower interest rates
It should be noted that debt consolidation also has some drawbacks, these are:
- No payment reduction
- An application process is involved
- Origination fees
As you can see both of these have their fair share of positives and negatives. So once you have chosen the one best for you, you would want to make sure it fits your needs.At the end, there are many attractive offersfor both debt consolidation and credit card refinancing.So, when Credit Card Refinancing vs Debt Consolidation matter pops up, then all you need to do is make research and find out the one best for you.