How to Refinance Credit Card Debt

There are two primary methods to refinance credit card debt. You can modify the terms directly with your lender. Or, your new lender can assume the debt you owe. The new lender usually transfers your balance to a new card, but you can also take an installment loan to refinance. Your personal situation will dictate your primary goals.

Credit Impact

Whenever you refinance a loan, you are changing your credit profile, and this will result in a change in credit score. If you modify directly with your current lender, you may have a small credit drop because of the credit inquiry and the change to your existing balance, if any. If you modify with a third party lender, your score can drop because of the credit inquiry, closing one loan and opening a new debt. The second method will have a larger impact on your overall credit. If you are most concerned with protecting your good score, modifying directly is a better option for you.

Suspension of Payments

When you modify directly with your lender, your next bill will come as usual, but your new payment amount will be reflected. You are picking up right where you left off. On the other hand, if you move to a new loan or credit card, you may receive a "no payment" period. This can last anywhere from three months to a year. If you are in a financial situation where you need this break in order to avoid bankruptcy or handle another fiscal emergency, the suspension of payments can be an invaluable resource and a key reason to pursue third party modification.

Interest Rate

Your current credit card company will have little reason to offer you a competitive bid. If you take their offer, the credit card company makes money. If you refuse their offer and choose to transfer your balance, the credit card company still makes money. As a result, you will not likely receive the lowest quotes possible in your direct modification. A third party lender is more likely to offer a competitive bid in order to steal your business. This lender has a direct incentive to be extremely competitive, and you may be quoted a rate several percentage points lower than your current score. 


Beware of refinancing companies offering "too good to be true" deals. You may find your company offers no payments for six months plus an extremely low rate. Question what will happen over time, and pay attention to rates that will increase. It is no longer legal to change rates on existing credit card debt. However, if the adjustment is written into the initial contract, the company can avoid this regulation. You should only take a loan from a third party refinancing company if you are certain the deal is actually less expensive for you. Don't be tempted to take the deal only because it solves your immediate debt problem. If the new debt is too expensive, the problem will come back in the future.

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