Credit Card Refinancing vs. Debt Consolidation — What’s the Difference?

If you have a lot of debt and need help paying it off, credit card refinancing or debt consolidation may be good options. Both options can make it easier to manage your monthly payments and, ultimately, end up debt-free. Done right, credit card refinancing and debt consolidation may also result in you paying less money over time.

Although both options have the same goal, the way they get you there is quite different. That’s why, before choosing one over the other, it’s important to fully understand the differences between them.

What is Credit Card Refinancing?

Credit card refinancing is the process of taking existing credit card debt with a high interest rate and transferring it to another credit card. It usually requires you to open a new line of credit. In some cases, you may instead have to take out a personal loan.

The new credit card is known as a balance transfer credit card. A balance transfer credit card can be very beneficial when used correctly. Before applying for one, make sure it has the following:

  • No annual fee
  • Long introductory period (6 to 24 months) with low or 0% APR (annual percentage rate)
  • $0 or low balance transfer fee

Not all credit cards come with the option for a balance transfer. Among those that do, not all have good terms or rates. Fortunately, there are a few solid options out there from well-known credit card companies, including:

  • Citi Diamond Preferred Card. This balance transfer card has 0% APR for the first 21 months. It does come with a balance transfer fee of 5% or $5, depending on which is higher.
  • Wells Fargo Active Cash Credit Card. This credit card has 0% introductory APR for balance transfers made within the first 15 months. There is no annual fee, but balance transfers cost between 3% and 5% of the total balance.
  • SunTrust Prime Rewards Credit Card. This card has 3.25% variable APR for the first 36 months. There is no cost for balance transfers made within 60 days of opening the account. After 60 days, each balance transfer costs 3% of the transferred amount.

Credit card refinancing with a balance transfer card is a fairly simple process. To do it, simply apply for the card. Once approved, transfer the balance from another high-interest credit card to the new one. Then, make monthly payments on the new card until the balance is paid in full.

What are the Pros and Cons of Credit Card Refinancing?

As with anything else, there are both pros and cons to credit card refinancing. Here’s what you need to know.


  • The average 0% APR introductory period on balance transfer credit cards is 13 months.
  • Balance transfer lets you lock in a lower interest rate than that offered by most major credit cards.
  • If you pay off the balance before the introductory period ends, you can save a lot of money in interest.
  • It’s relatively easy to apply for a balance transfer card.
  • There’s usually a quick turnaround time (couple of days) from the application date to card activation.
  • Most credit card issuers offer a prequalification option that won’t impact your credit.
  • If the credit card limit is high enough, you could transfer all existing credit card debt at once.
  • Personal loans for credit card refinancing often have higher limits than traditional balance transfer cards.
  • Some lenders may let you use it to refinance other consumer debts like high-interest auto loans.
  • The new monthly payment after credit card refinancing is typically much lower than before. The lower minimum payment should help ease your budget crunch.
  • Credit card refinancing could leave you debt-free.


  • Credit card refinancing requires a high credit score (670+) to qualify.
  • The amount of debt you can transfer depends on the new card’s credit limit.
  • Balance transfer fees typically range from 3% to 5% of the amount transferred.
  • You’ll need to complete the balance transfer within a certain period (usually 60 days) for the most benefits.
  • Late payments could result in a penalty, and you could lose the 0% introductory rate.
  • Credit card refinancing may only cover one debt at a time or smaller debts.
  • Applying for a balance transfer credit card means a hard inquiry, which will temporarily impact your credit score.
  • It’s not usually possible to transfer balances between cards issued by the same lender.
  • The 0% APR expires after a certain point (usually 12 to 18 months).
  • If there’s still a balance after the introductory period, you’ll owe interest on the new card.

What is Credit Card Debt Consolidation?

With credit card debt consolidation, you can combine multiple, high-interest debts into a single, low-interest monthly payment. This method does require you to take out either a personal loan or a debt consolidation loan. The new loan should have a much lower rate than the original debt. That way, you’ll be able to pay it off more easily — and perhaps more quickly.

Unlike with credit card refinancing, debt consolidation doesn’t rely as heavily on your current credit score. In fact, some lenders offer loans to borrowers with bad or fair credit. Some of the best lenders for credit card debt consolidation for bad credit are SoFi, Best Egg, and Upgrade. Check out our other recommendations here.

To get started with credit card debt consolidation, first figure out To get started with credit card debt consolidation, first figure out how much debt you need to combine (there’s a good calculator here), then figure out your ideal loan amount. Then, find a lender and apply for a debt consolidation loan for that amount. Once approved, you can consolidate the debt and start paying off the new loan as usual.

What are the Pros and Cons of Credit Card Debt Consolidation?

Just like with credit card refinancing, there are some things to consider before choosing to consolidate your credit card debt.


  • Debt consolidation loans usually have a fixed interest rate that’s lower than the interest rate on the debts before consolidation.
  • It requires a single, fixed monthly payment and your loan payments will have a consistent due date.
  • Some lenders offer a little more flexibility or customization in their payment plans (i.e. payment due date).
  • It’s easier to manage one loan than it is to manage multiple debts with different minimums and due dates.
  • You can merge multiple debts rather than just one.
  • Debt consolidation can be used for different forms of debt, including credit card, auto, medical, and personal loans.
  • There’s typically a 3- to 5- year repayment period on the new loan.
  • Credit card debt consolidation puts less emphasis on credit score (i.e. more options for low-credit borrowers).
  • A personal loan for debt consolidation does not require the borrower to put up collateral.
  • It could potentially save you hundreds or thousands of dollars in interest.


  • Credit card debt consolidation is mainly beneficial if you have multiple, high-interest debts.
  • It won’t resolve all your financial problems on its own.
  • The fees (interest, balance transfer, annual, late payments, origination, etc.) can add up.
  • A poor credit score will not qualify you for the best loan rates (ex. 540 credit score may mean higher interest).
  • One late payment on the loan can stay on your credit report for up to 7 years.
  • It takes time to set up a debt consolidation loan (up to 60 days).
  • Applying for any new loan product will temporarily damage your credit score.
  • Your loan options will be somewhat limited if you have poor credit, and you won’t qualify for the lowest rates.

Are you still confused about debt consolidation? Watch this to learn more:

Options for Credit Card Debt Consolidation

Here are the best options to consolidate and manage credit card debt.

Debt Consolidation Loan

A debt consolidation loan is a loan that takes two or more debts and refinances them into a single loan. These loans may be secured or unsecured, depending on the borrower’s credit score and how much they owe.

For most people, a debt consolidation loan is a more affordable option than having multiple, high-interest debts. This is because these loans require a single monthly payment and (usually) have a lower interest rate. Plus, since there’s only one loan to keep track of, it’s easier to make the monthly payments on time.

Most lenders charge a loan origination fee for a debt consolidation loan. However, this fee is usually lower than the balance transfer fee that comes with most balance transfer credit cards.

Personal Loan

A personal loan is a type of loan that can be used to consolidate multiple high-interest debts into one loan. These loans usually have a lower interest rate than credit cards. In fact, the interest rate for those with excellent credit starts at around 3.99%. This makes personal loans a great option for those who need to lower their monthly payment.

Most personal loans are unsecured, meaning they don’t require the borrower to put up any collateral. However, low-credit borrowers may only qualify for a personal loan that’s secured by their vehicle or home. If you have poor credit, the interest rate on a personal loan can be as high as 35.99%.

Home Equity Loan

A home equity loan is a fixed loan that uses the equity in your home as your borrowing limit. Equity is the amount the home is worth against the remaining amount you owe on the mortgage. The maximum you can borrow is around 85% of the equity in your home. This limit does depend on things like your income and credit score though. A home equity loan is secured by your home. This means you run the risk of losing your home if you default on payments.

Another option is a home equity line of credit (HELOC). A HELOC is a revolving line of credit that uses your home equity as the limit. Just like with a traditional credit card, you can borrow up to the credit limit on a HELOC. However, you must also make regular, on-time payments.

A third option, one that also uses the equity in your home, is cash-out refinancing. Cash-out refinancing is a new loan that lets you take out the home equity in cash. You can then use it to refinance the home, fund major purchases, pay off high-interest bills, or consolidate debt. However, a cash-out refinance usually comes with a higher interest rate than the original mortgage.

Any of these options can be beneficial if you need to consolidate debt at a lower interest rate. However, if you fail to make payments, you could lose the property.

Debt Settlement Company

If you have a lot of unmanageable debt, debt settlement may be a good option. This is done by enrolling your debts into a program with a debt settlement company. These companies are for-profit and can help lower or consolidate all your enrolled debts within 2 to 5 years.

The way it works is simple. First, you enroll your debt into a debt settlement program. Once that’s done, the company negotiates loan terms with your creditors or lenders on your behalf until they reach a “settlement.” This “settlement” is how much money you now owe. This new amount can be as much as 50% less than what you initially owed.

Debt settlement may be a good option if you’re being pursued by debt collectors and can’t manage your debts. However, it does come with its downsides.

For one, a debt settlement program usually takes between two and four years to complete. For another, the debt settlement company will charge for its services. Debt settlement can also severely damage your credit.

That said, debt settlement does have its pros. With it, you’ll owe less money than you did originally. Once you owe less money, you may be able to pay back the debts more quickly than you could before. Plus, your credit will recover over time if you continue to make regular, on-time payments and don’t accrue more debt.

One thing to be aware of is that there are many scam debt settlement companies out there. When choosing one, check its reputation on sites like BBB. Look for any unresolved consumer complaints and see how long it’s been in business. Also, avoid companies that charge upfront for their services or make unrealistic guarantees about settling your debt.

Try to choose a company that charges based on the amount of debt settled, not how much debt you enrolled. If the company does charge based on the amount enrolled, it should be no more than 25% or 30%. Find a breakdown of the most reliable debt settlement companies here.

Debt Management Plan (DMP)

Some nonprofit credit counseling agencies offer what’s known as a DMP, or debt management plan. With this plan, the agency will negotiate with your creditors to lower your fees or interest rates. The plan doesn’t reduce the principal amount you owe, but it does make monthly payments more manageable.

DMPs usually cost less than debt settlement companies and don’t impact your credit. Plus, after completing the plan, the non-profit agency may connect you with a qualified credit counselor. This credit counselor will work with you to improve your budgeting and money management skills for the future.

Borrowing From Friends or Family

Asking for financial help from family members or friends can be tough, but it’s sometimes the best option. This is especially true if you have poor credit or don’t qualify for financing elsewhere.

Borrowing from someone you trust can make it easier to make your payments without damaging your credit score. Plus, even if they charge interest, chances are it’ll be lower than what you’d get with another loan product or credit card.

This option does come with a few drawbacks. One of the biggest ones is if you fail to repay what you owe. To avoid this issue, create a written agreement before borrowing money. This agreement should include things like payment dates and amounts. If all goes well, you’ll be able to pay off your debts with less pressure over time.

Should You Consolidate Credit Card Debt or Refinance?

Before choosing to consolidate or refinance credit card debt, ask yourself:

  • How long will it take to pay off these debts if there’s no interest? How long will it take if there’s some interest but a longer repayment period?
  • What’s my current credit score? Do I qualify for the best rates to make it worthwhile?
  • Do I own any other assets, like a home, that I can use to refinance or consolidate debt?

With both options, the goal is to reduce how much you’re paying every month to make the debt more affordable. Both options will also give you a better chance of becoming debt-free in the future. But the way you go about doing this varies quite a bit based on things like timing and credit score.

For instance, if you can pay off the debt within the 0% introductory APR grace period, then a balance transfer credit card may be best. If you can’t, then debt consolidation may be better since it’ll give you more time to pay your debts.

When to Choose Credit Card Refinancing

  • You have a credit score of 680 or above.
  • You’ll be able to pay off what you owe during the 0% introductory APR period so there’s no interest.
  • You qualify for a high enough credit limit that lets you roll all your debts into the new credit card.
  • There’s basically no chance of you charging the new card with new purchases. Any new purchases could result in other fees or end the 0% interest period.

When To Choose Debt Consolidation

  • Your existing debt is too high for a balance transfer card’s credit limit.
  • There’s a low chance of you paying off the entire balance within a credit card’s introductory APR period.
  • Other assets (like home equity) and a good credit score will let you take out a second mortgage or HELOC.
  • You’ve already pre-qualified for a personal loan that has a low interest rate and no annual fee.
  • It’ll be easier to pay off the debt due to the longer repayment plan and lower monthly payments.

The Bottom Line

Ultimately, credit card refinancing and debt consolidation are both good options if you have a lot of high-interest debt. Both options could save you hundreds or even thousands of dollars overall. Whichever option you choose, make sure it fits with your financial situation and budget. That way, you can get a better handle on your finances and keep from accruing more debt over time.


Can I Consolidate Other Types of Debt Along With My Credit Card Debt?

This depends on the method of consolidation. With a conventional debt consolidation loan, you can combine different types of debts into one loan. These debts include things like student loans, medical debt, and credit card debt. Certain debt consolidation methods won’t let you consolidate certain types of debt. For instance, with a DMP, you can’t include student loans or auto loans in the plan.

What is a FICO Score?

A FICO score is a three-digit number ranging from 300 to 850. It’s what potential lenders use to determine how likely a person is to repay what they borrow. Several things influence your FICO score. This includes payment history, credit utilization, age of credit, hard inquiries, and diversity of accounts. 
A 670+ FICO score is considered good or excellent credit. In this range, you’ll qualify for most loan products at the best rates. A FICO score between 580 and 669 is considered fair. With fair credit, it’s usually possible to qualify for middle-of-the-line loans and credit cards. Finally, a credit score below 580 is considered poor and will make it difficult to qualify for most financial products.

Should I Consolidate Student Loans with my Other Debt?

Consolidating student loans has its pros and cons. On the one hand, it can be easier to manage payments since consolidating them means making one monthly payment. It may also result in a lower interest rate and a lower minimum monthly payment. On the other hand, consolidating student loans could mean a longer repayment term. This means you’ll end up paying more in interest over time. Additionally, consolidating federal student loans may disqualify you from benefits like loan forgiveness or deferment.

Should I Also Consolidate Medical Debt?

This depends on how much you owe. Medical debt does not come with interest. So, in most cases, it’s better to set up a payment plan instead of consolidating it. However, if you have multiple medical bills and can’t keep up with them, consolidating them can make things easier. Plus, depending on how much you owe, consolidating medical debt could mean lower monthly payments.