If used recklessly, credit cards can push someone into a debt trap. In such cases, the best way to manage the situation may be credit card debt refinancing.
With changing lifestyles and growing expenses, credit cards have become inevitable today. Apart from managing one’s financial needs, credit cards also prove to be one’s best friend in times of crisis. However, if used recklessly, credit cards – with their hidden charges and hefty interest rates – can also push someone into a debt trap. In such cases, the best way to manage the situation may be credit card debt refinancing.
What is Credit Card Refinancing?
Credit card debt refinancing is the process of transferring the balance of one credit card to another. It is also known as balance transfer. The complexity otherwise is the repayment turning into an endless cycle and this commonly happens to be the biggest problem with highly-rated credit cards. Therefore, people choose to refinance their credit card debt to get a better repayment structure.
The other common method to pay off your debts is a debt consolidation loan or a personal loan. Here a lump-sum amount is acquired from lenders and is paid to clear all credit card dues at once.
Why is Credit Card Refinancing a smart decision?
Here are some valid reasons why credit card refinancing helps in improving the debt structure:
1. Zero percent introductory offer
Many credit card companies offer a zero percent interest rate on balance transfer for a specific period. You can simply pay back through monthly installments at zero interest rate for a period of about 6 to 18 months.
2. Easy application
The application process of credit cards is brisk. If you apply online, you will get a response within a minute or two. Though a personal loan can refinance your credit card debt, it requires 2-3 days for sanction.
3. Low interest rates
Interest rates on credit card balance transfer are usually lower. Even debt consolidation loans provide lower interest rates compared to the existing credit card rates.
4. Fixed interest rate
If you consider refinancing your credit card debt using a personal loan, most of the lenders provide fixed interest rates for the entire loan tenure.
5. Settled installment
In a debt consolidation loan, the monthly payment will remain the same till you pay off the entire debt. So, there will be no ups and downs in monthly installments.
6. Fixed payment term
You will get a fixed payment term if you choose to refinance your credit card debt through a personal loan. This will help you clear your debt at the earliest.
Tips to make the best use of Credit Card Refinancing
Here are some helpful tips which can be used while refinancing your credit card debt:
1. Make a list of all debts
Note down all the existing credit card debts on a paper. This will help you decide whether to go for a balance transfer with a lower interest rate or go for a personal loan to pay off debts at once.
2. Check affordability
Depending upon your capacity to pay back the debt, you can pick the strategy to refinance your credit card debts. If you have a highly-rated credit card, you may exchange your current balance with another credit card that offers a lower interest rate. And if you wish to pay off 2-3 credit card debts at a go, then apply for a debt consolidation loan and focus on paying this single loan.
3. Talk to your current lender for penalties
If you decide to pay off the existing debts, you may be asked for a penalty fee. Discuss about all the penalties you need to pay for closing the debts all at once and before time.
4. Look for the best lender
There are various lenders and credit card companies which provide funds for consolidating debts. Look for the banks and appropriate lenders which offer affordable balance transfer cards and loans.
(By Aditya Kumar, Founder & CEO, Qbera.com)