Credit card refinancing vs. debt consolidation: What's the difference?

Dealing with credit card debt? Try these two options. (iStock)

Credit card debt is a problem for millions of Americans (about 189 million, to be exact). And for many, it’s hard to get out of.

With an average of $8,398 in balances per household, credit card debt can pose a mounting challenge. Making minimum payments can keep you afloat, but as interest adds up, tackling that debt — and eventually getting out of it — start to seem more difficult than ever.

Credit card refinancing vs. debt consolidation

If you’re dealing with high credit card debt, there are two strategies that can help you: credit card refinancing and debt consolidation.

Credit card refinancing

"'Credit card refinancing' is a fancy way of saying 'balance transfer offer,'" said Howard Dvorkin, a certified public accountant, and chairman at

Put simply, it’s when you use a new card — one with a low- or 0% interest rate for six to 18 months — to pay off the balances of all your other cards. This allows you to reduce your debts without racking up extra interest along the way. If you are looking for a zero percent credit card, head to Credible to compare cards and see what they can do for you.

According to llian Georgiev, CEO and co-founder of personal finance app Charlie, the benefits of this move can be huge.

"All the money you’re paying each month is getting applied directly to the principal instead of getting split between the debt you owe and interest," Georgiev said. "It’s a magic bullet when it comes to debt repayment."

Credible can help you find the right credit card for you. Choose zero percent credit cards and get a breakdown of the annual fee, welcome offers, credit needed, and more.

Refinancing your credit card isn’t the perfect solution, though — and it definitely comes with some drawbacks and risks, according to pros. For one, there are usually transfer fees required.

"You must do the math to figure out if you are getting a better deal, and it is easy to mess up," Georgiev said. "The bank is betting that you will and that’s why they are offering you the deal."

There also may be large late fees if you fail to make your payment on time or, if you don’t pay off your balance or transfer it before the promo rate expires, you could find yourself paying an even higher interest rate than you are now.


Debt consolidation

Debt consolidation is a different option. This one uses a personal loan to roll all your debts — credit cards, car loans, student loans, etc. — into one single balance.

"Consolidation loans can take care of credit card debt, unpaid medical bills, collection accounts and payday loans," Dvorkin said. "A consolidation loan can also lower someone’s monthly debt payments, reduce their interest rate and help them get out of debt faster."

If you have a lot of high-interest debts, consolidating them can usually mean a lower interest rate and less paid in interest over time. It’s also easier to manage payments for.

If you think that a loan like this might be the best choice for you, visit an online marketplace like Credible to get a sense of your debt consolidation loan options.


"You replace a bunch of loans, with a bunch of terms, with just one loan you can wrap your head around," Georgiev said. "It’s predictable, and just like with a car loan, your monthly payment is fixed and has a fixed end date. That makes it easier to budget."

Again, this solution isn’t perfect. Consolidation loans come with set-up fees, annual fees, transfer fees, and more, and there’s not much flexibility. "You are committing to making a fixed payment for a long time," Georgiev said.

Should I refinance a credit card or consolidate debt?

Credit card refinancing is probably your best bet if you only have a few thousand dollars on your cards — or those cards come with particularly low rates. You’ll also want to be sure you have a handle on your spending habits, as 0% promo periods can pose quite the temptation.

Use Credible to determine if a balance transfer or 0% credit card makes more sense for your financial situation. Credible makes it simple to compare options.

"You also need to avoid running up more debt," Georgiev said. "Yes, your old credit card is now at zero, so you might feel like you have a lot of breathing room, but you don’t. The goal here is to have less debt, at a cheaper rate, not more, across more cards."

To qualify for these cards, you’ll usually need a 700 credit score or higher. You should also run the numbers and be sure your savings will outweigh any transfer fees the card comes with.

Consolidating your debts can be smart if you have a wide array of debts—and ones in high amounts. You’ll need to be sure you have a steady income, as these require regular, monthly payments for many years down the road.

Be sure to use a personal loan calculator​ to determine what your monthly payment might look like, and if you’re not confident you’ll have the income to pay that consistently, then steer clear. You can also use Credible's free online tools to see what kind of personal loan rates you qualify for. Just enter your desired loan amount and other simple information to view your options.

"Consolidation loans don't freeze credit accounts, and that means consumers with a problem can quickly get back into debt," Dvorkin said. "Consumers hoping to use this debt tool should also look into the cost of a consolidation loan. If they can't afford the loan payments, the fees to set up their loan, or the interest charges, consolidation is probably not for them."


The bottom line

Both credit card refinancing and debt consolidation can be good options if you’re dealing with credit card debt. To determine which is the best route for you, make sure to visit an ​online marketplace like Credible​ to see what 0% credit card options you might be eligible for. Rates for personal debt consolidation loans are also available.