There’s no denying that having a credit card can be incredibly useful. You can buy anything you want in an instant even if you don’t have any cash on you. Moreover, paying off your credit card bills on time is the fastest way to build your credit score. However, you will reap the benefits of a credit card only if you exercise disciple and use your card wisely. Spending lavishly without being able to afford the monthly bills will result in credit card debt.
Credit card debt is the most expensive type of debt you can have. The interest rates on outstanding payments are shockingly high. If you’ve fallen behind on a payment, the credit card company will charge you a high late fee payment. On top of that, they will also charge you a high-interest rate on the outstanding payment. This can push you further into debt, making it even more difficult to regain control.
Refinancing is one way to lower the cost of your credit card debt.
How Refinancing Credit Card Debt Works
Credit card refinancing is the process of transferring the balances from your current credit card to a brand new card. The key to successfully refinancing credit card debt is to look for a balance transfer credit card that comes with zero interest. You may wonder, do zero-interest credit cards really exist? They don’t usually but lenders offer this feature for a limited time for new credit cardholders. It’s a way to build their customer base. Most lenders offer a grace period of anywhere from 11 to 18 months. After this period lapses, the interest kicks in.
When you refinance your credit card debt, you transfer all your credit card balances to a zero-interest card. You then focus on aggressively paying off the entire balance during the grace period. This allows you to clear your outstanding debt without incurring any interest resulting in substantial savings.
While credit card debt refinance is a popular and effective solution, it may not be right for everyone. A look at the pros and cons of refinancing credit card debt can help you decide whether or not it’s right for you.
First, let’s start out with the benefits.
Saving money is one of the biggest benefits of refinancing credit card debt. With a 0% interest rate, you would be able to start clearing your debt without paying any interest. Depending on the amount of credit card debt you have, this could add up to several hundred dollars. This strategy is particularly effective if you have a relatively small credit card balance that you can pay off within the 12 to 18 month grace period.
Though your credit score will take a hit once the lender does a credit check, paying on time will build it back up. In fact, it can improve it since you’ll create a strong payment history. Be consistent!
It’s important to consider the drawbacks of refinancing as well.
Most credit card companies will only offer you a zero-interest credit card if your credit score is higher than 680. You’ll find it difficult to get approved with a lower score.
After the zero-interest ends, balances attract higher interest rates. If you don’t pay off your balances within the grace period, you will pay a higher rate on the balances. This will make the debt payments even more unaffordable, sending you further into debt.
You should choose this option only if you can get a card with 0% interest and a high credit limit. Most important of all, you must be sure that you will be able to clear your balance before the zero-interest period ends.
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