The two most common methods of debt relief are credit card refinancing and debt consolidation. Both methods can be used to lower your monthly payments, reduce your interest rates, or get out of debt altogether.
Credit Card Refinancing
Credit card refinancing is the process of taking out a new loan to pay off your existing credit card debts. This can be done with a personal loan, a balance transfer credit card, or a home equity loan.
Advantages:
- You may be able to get a longer repayment term. A longer repayment term means lower monthly payments. This can make it easier to afford your monthly payments and pay off your debt over time.
- You may be able to get out of debt faster. By consolidating your debts into one loan with a lower interest rate, you may be able to pay off your debt quicker than if you kept making separate payments on each of your credit cards.
Disadvantages
- You may not be able to consolidate all of your debts. If you have outstanding balances on multiple cards with different interest rates, you may not be able to consolidate all of your debt into one loan. In this case, you would still be making separate payments on each of your credit cards.
- You may end up with a higher monthly payment. If you have a high-interest rate on your new loan, your monthly payment could end up being higher than it was before you consolidated your debts. Make sure you can afford the new monthly payment before you agree to a loan.
Debt Consolidation
Debt consolidation is the process of taking out a new loan to pay off your existing debts. This can be done with a personal loan, a balance transfer credit card, or a home equity loan.
Advantages
- You may be able to get a lower interest rate. If you have good credit, you may be able to qualify for a lower interest rate on your new loan than you are currently paying on your debts. This can save you money over the life of the loan.
- You may be able to improve your credit score. If you make all of your payments on time and in full, you may see your credit score improve over time. This can make it easier to qualify for loans in the future.
Disadvantages
- You may put your home at risk if you use a home equity loan to consolidate your debts. A home equity loan is a secured loan, which means that your home is used as collateral. If you default on your loan, you could lose your home.
- You may not be able to discharge your debt into bankruptcy. If you file for bankruptcy, your debt may not be discharged if it is consolidated into a new loan.
So; which method is best for you?
It’s important to understand the difference between credit card refinancing and debt consolidation. And make sure you understand the pros and cons of each option before you make a decision.
