It is extremely easy to overuse a credit card. After all, with them you get the ability to pay for commodities that you normally can’t get. But it happens so often that an individual goes on a credit card spending spree and after a month realizes he has a huge credit debt! This debt can be extremely hard to pay off, not unless you use alternative solutions that can help you.
These solutions are credit card refinancing and debt consolidation. They have the same essential motives but choose different routes to achieve them. Since both of these options have different prerequisites as well as different benefits, one should be aware of which option would be the most preferable for them.
That’s why in this article we’ll talk about the various differences in credit card refinancing against credit card debt consolidation so you can figure out which option suits you the most.
What is Credit Card Refinancing and Debt Consolidation?
While these two achieve the same result for us, it doesn’t necessarily mean that they operate in the same way. Credit card refinancing means putting all your credit debt from your cards into one single card that is offering 0% or the next lowest interest rate possible.
According to Credit Associates Reviews, this is especially convenient because instead of having the hassle of managing several cards and their debt, you just have to manage one. There are many credit cards that offer an interest rate of 0% for about 14 to 18 months after you obtain it, after which they charge normal credit card interest. You have the opportunity to clear off all your debt at no interest in this limited period.
Then there is Debt Consolidation which is essentially buying another loan to pay off your existing credit card debts. This is actually quite a smart venture, considering the interest rates offered by home equity or personal loans are much lower than the interest rate offered by your credit card company.
Essentially you will still have to pay off monthly loan payments, but the interest you will be charged will be much lower. Also, these loans have longer payment durations of 4-5 years which means the number of monthly payments would be much more manageable.
What’s the difference between the two?
You may have noticed that there are similarities between the two options but they are actually quite different in nature.
While credit card refinancing offers a 0% interest rate, the duration you can pay it off is very limited. On the other hand, debt consolidation may offer a longer duration, but they charge interest rates of 6%-9%, depending on the type of your loan. Additionally, since refinancing has such a limited duration of repayment, it also means that you get to use your credit card less until you pay all your debtl off.
Debt consolidation may seem a preferable choice, then, but it’s important to know that in home equity loans you put your home on the line. In the failure of the monthly repayment, your home will be forfeited. While personal loans don’t require such collateral, the lenders do require a lot of details and upfront costs from you and it can be a very tedious process.
Choosing between credit card refinancing and debt consolidation basically comes down to your repayment ability. That being said, we hope this article was insightful for you and helped you make a wise financial decision.